Lockheed Martin (NYSE: LMT) has been on a select group for the past week, bucking the bloodbath that fell on the US Markets the past 4 sessions, with the S&P 500 declining significantly by 5.5% and despite the current bearish mood amongst investors, the stock outlook for LMT appears to be rosy. Wanna know why? Let’s have a look.
Why Lockheed Martin?
The primary reason is that military spending is increasing in all countries, notwithstanding their peaceful rhetoric in recent years.
Because of Russia’s invasion of Ukraine, many countries have realized that preparing for war is the best approach to protect the peace, just like what the Romans used to say.
The US (the biggest client of military contractors) will continue to require their services in the war for technological superiority against China and other old traditional enemies such as Russia.
Also, because no other company specializes in the specialist markets of aeronautics and missile systems, Lockheed products are tough to replace, thus providing Lockheed a long-term competitive edge, dramatically lowering the terminal value risk of future cash flows and at the same time, the oligopolistic character of the company’s market decreases the risks associated with the terminal value of the cash flows, as the military sector has high entry barriers.
This minimizes disruption while allowing small enterprises to thrive in a lucrative market.
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The Numbers
Lockheed Martin’s latest financial performance from the third quarter of 2022 was strong. Revenue was $16.6 billion, an increase of 7% sequentially and 3% year on year. This was driven by favorable results in three of the four business segments.
The primary driver of the increase was a $7.5 billion order modification for the manufacturing of 135 F-35 fighter jets for the United States Navy, Marine Corps, and Air Force.
The Swiss government inked a contract for 36 F-35 fighter fighters in September, which has been prompted by European tensions over the Russia-Ukraine conflict.
The company’s overall backlog climbed by $5 billion to a remarkable $140 billion, providing investors with steadiness and peace of mind.
The overall operating profit was $1.856 billion, with a margin of 11.2%. Profit grew marginally from $1.85 billion in Q3,21, but margins fell from 11.5% the previous year.
The main reasons for this were mark-to-market accounting changes and a pension transfer transaction. However, after adjusting for these effects, earnings per share (EPS) improved by 4% year over year to $6.87, exceeding analyst consensus projections by $0.16.
Price Action for Lockheed Martin
Moving on to the price charts, LMT price action during the current bear is incredible with most stock prices kept on digging, Lockheed Martin keeps on rocketing towards the sky, setting up all-time highs, with the previous favorites from the tech sector digging up new lows.
After first setting up a new all-time high in late October, LMT has been consolidating between 499 and 458 per share.
The moving average convergence/divergence (MACD) line is currently under the signal line, but as it continues to gain momentum upwards, the price can coincide with both breaking the signal line and the psychological barrier of 500 per share, and establishing new all-time highs.
A breach of the 500 level would likely bring even more buying pressure, and push the price even further.
Competitors and Vulnerabilities
Lockheed Martin’s extensive portfolio of products and services competes with those of other large aerospace, defense, and information technology businesses, as well as a number of smaller rivals.
Commonly in the industry, Lockheed Martin frequently forms partnerships with other companies that are rivals in different fields, these include Boeing (BA), Raytheon Technologies (RTX), Northrop Grumman (NOC), General Dynamics (GD), L3Harris Technologies (LHX), TransDigm Group (TDG), Aerojet Rocketdyne (AJRD), Kratos Defense & Security Solutions (KTOS), Rocket Lab USA (RKLB), and Kaman (KAMN).
Risks against investing in LMT are that they operate in a highly regulated environment, adding an extra layer of risk to the investment thesis.
Another is that their products and services are not overly diversified, as a sudden disruption to their production or sudden changes in regulations can severely compromise cash flows.
Finally, since LMT has massively outperformed the general market, the price may be overvalued at the moment.
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Final Takeaways
Lockheed Martin manufactures cutting-edge equipment that has proven itself in real-time battle scenarios.
The company is an excellent defensive asset for your portfolio, and the recent dividend increase of 7% makes it even more appealing.
Lockheed Martin is an excellent investment for investors looking for a high-quality military firm with long-term revenue clarity, a robust balance sheet, and aggressive shareholder returns through share repurchases and dividends.
While some investors might balk at the price of LMT being literally in the heavens, in a sea of reds, the outlook remains great for Lockheed Martin to continue bucking the trend, and remain an outlier.
Given all of these, any price breaks out from the key psychological barrier of 500 will trigger my buy stops.
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