Lockheed Martin Stock Is Believed To Be Fairly Valued
- By GF Value
The stock of Lockheed Martin (NYSE:LMT, 30-year Financials) shows every sign of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $394.1 per share and the market cap of $109.5 billion, Lockheed Martin stock gives every indication of being fairly valued. GF Value for Lockheed Martin is shown in the chart below.
Because Lockheed Martin is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 10.6% over the past three years and is estimated to grow 3.42% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Lockheed Martin has a cash-to-debt ratio of 0.24, which which ranks worse than 73% of the companies in Aerospace & Defense industry. The overall financial strength of Lockheed Martin is 5 out of 10, which indicates that the financial strength of Lockheed Martin is fair. This is the debt and cash of Lockheed Martin over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Lockheed Martin has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $66 billion and earnings of $24.78 a share. Its operating margin is 13.10%, which ranks better than 78% of the companies in Aerospace & Defense industry. Overall, the profitability of Lockheed Martin is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Lockheed Martin over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Lockheed Martin is 10.6%, which ranks better than 75% of the companies in Aerospace & Defense industry. The 3-year average EBITDA growth is 13.8%, which ranks better than 68% of the companies in Aerospace & Defense industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Lockheed Martin's return on invested capital is 16.74, and its cost of capital is 7.15. The historical ROIC vs WACC comparison of Lockheed Martin is shown below:
Overall, The stock of Lockheed Martin (NYSE:LMT, 30-year Financials) is estimated to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 68% of the companies in Aerospace & Defense industry. To learn more about Lockheed Martin stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
