Lockheed Martin (NYSE:LMT), the leading player in the aerospace defense sector, is a decent stock to have in a portfolio for both income and growth investors and has consistently provided significant returns.
In the last year, the stock has provided returns of about 83.55%, which is highest in comparison to its peers, which include Boeing (NYSE:BA), Raytheon (NYSE:RTN), and Northrop Gruman Corporation (NYSE:NOC). If we also include the dividend, then the total shareholder return for the company becomes around 91% in the last year. In comparison, Boeing, Raytheon and Northrop Gruman Corporation gave total shareholder returns of about 76.5%, 80.75% and 84.19%, respectively.
Consistent share buybacks and dividend payments
With its share buyback activities, Lockheed Martin has ensured decent shareholder returns beyond just the stock returns. In 2013, the company paid back around $3.3 billion in the form of dividends and share repurchase activities, resulting in a shareholder yield of around 11% with respect to the market cap of the company at the start of 2013.
Source: company presentation
The company has given back cash well over 50% of its goal. As of December 31, 2013, the company still has $3.57 billion available under the present share repurchase program. Compared to its peers, the shareholder yields of Boeing, Raytheon and Northrop Gruman are at 7.4%, 9.3% and 18.3%, respectively. Overall, the company has generated outstanding value for its shareholders. Here is the list of the top funds that own the equity ownership of the stock as of the 31st of December, 2013.
% Total shares held
% Total Assets
American Funds Washington Mutual A
American Funds Inc. Fund of Amer. A
American Funds Capital Inc. Bldr. A
American Funds American Balanced A
MFS® Value A
According to the recent 10-K filings, the company witnessed a decline of 4% in the topline year-over-year in 2013, but it was to achieve an increase of around 8.5% in the bottom line. The company also witnessed an EPS increase of 8% year-over-year and to maintain book-to-bill ratio of 1.01 in 2013, i.e., the ratio of orders received to sales. With this, the company was able to grow its backlog to the highest level. The overall financial result has met the company's expectations. Driven by good financial performance, Lockheed Martin has a positive outlook for the year 2014.
Upon review of the valuation multiples above, Lockheed Martin seems overvalued with respect to the Price/Book and Price/Cash flow multiples compared to others in the industry. However, if we compare it using the most-followed valuation multiple, which is P/E, it is still lower than the industry average. Because the stock seems overvalued on the majority of multiples, the big question arising here is whether the stock will be able to continue the growth momentum. In my opinion, Lockheed Martin still has the potential to provide lucrative capital gains in the future. I am still bullish on the stock because of the strong fundamentals.
The frontrunner in the industry
Lockheed Martin remained top in the weapon sales ranking, despite the rise in Russian production. The success of the companies in the aerospace industry depends on contracts from the Pentagon, despite this, the company has decided to "go green" for a cleaner tomorrow. To enhance the availability of alternative energy solutions, Lockheed Martin has signed a contract with Victorian Wave Partners to begin developing the world's largest wave energy project. The company announced its partnership with the alternative energy supplier to develop the world's largest project harnessing wave energy. The project is expected to produce enough power for 10,000 homes by 2018 and will be developed off the coast of Victoria, Australia. The project will involve partnership with Ocean Power Technologies (NASDAQ:OPTT), a company that focuses on the concept of converting wave energy into clean energy with the bobbing movement of a buoy. The process will produce mechanical energy that will drive an electrical generator and transmit power through an underwater cable.
Recently, Rolls Royce entered into a deal with Lockheed Martin worth $1 billion, which calls for a delivery of 600 engines to power C-130J Super Hercules military transport aircraft. As a result of this agreement Rolls Royce will be able to secure its AE 2100 as the engine of choice until 2035 for all the variants of C-130J. According to Lockheed Martin, this agreement will provide its customers with the world's most affordable air lifter.
Lockheed Martin is also partnering with Aerovironment (NASDAQ:AVAV) to enhance the market for the Aerovironment-built drone. Aerovironment is to supply the Pentagon with small, hand-launched drones including the Raven, Wasp and Puma models. The deal between the two companies was announced at the Defense Expo in India and was focused on collaboration of Aerovironment's massive Global Observer aircraft, which has the ability to robotically take on the work performed by satellites. The major objective of this deal would be to identify global customers of the product and convince them about its utility. The deal will lead to integration of Lockheed Martin's mission systems, ground systems and technology with Aerovironement's aircraft, increasing the opportunities for both companies in the development of unmanned aircraft.
Lockheed Martin promises good returns to its investors,and has always been active in creating value for its shareholders. The recent deals and partnerships indicate that the stock will continue to achieve its revenue and operating profit targets. Moreover, through consistent share repurchase activitites and dividends payment activities, it has established itself as an investor's dream. I give a buy recommendation on the stock.
Additional disclosure: Maverick Research is a group of Research Analysts, this article was written by one of our research analysts.