by Matthew Smith
Lockheed Martin (NYSE:LMT) is a US-based public enterprise with global operations primarily in the defense, aerospace and data security industries. Over the years, the stock has gradually earned its place among the giants in the industry with significant progress in terms of achieving a greater share of the global market. The company has achieved this largely by maintaining a diversified portfolio of innovative products and specialized services, catering to a global market that stretches across five continents.
This has provided Lockheed with the impetus necessary to establish itself securely in the specific industry. As a result, it has become popular among investors as a high-yield low-risk investment option. After analyzing the stock's latest financial indicators and looking at some recent developments that are sure to affect the stock favorably, I strongly believe that Lockheed is poised for higher growth in the current financial year.
The stock has made a remarkable recovery this year after a rather inauspicious close to the previous financial year when net income fell by nearly 29% year-on-year on account of an unprecedented decline of 4.3% in sale of electronic and space systems. Lockheed is currently riding the high tide after reporting a 20% rise in profits for the first fiscal quarter which is mainly due to a sharp rise in global sale of aircraft. As a result, the stock has recently been a favorite among investors who are eyeing higher returns on investment.
Lockheed traditionally earns the highest number of military contracts from the American defense department on an annual basis, largely owing to its high-tech state-of-the-art portfolio of products and services and for its impressive technological innovations. A number of recently awarded lucrative air-defense contracts promise to generate higher revenues for the business while also giving it an advantage over its peers. The company has received a five-year contract from the US Navy for installation of cockpits and integrated systems. The deal is valued at more than $1 billion and should greatly help the stock in its drive towards higher revenues and greater market share.
Apart from this, Lockheed has signed another contract with the US Air Force for the installation and upgrading of missile defense and delivery systems and related security platforms. The deal is valued at nearly $21.5 million and will allow the stock to significantly widen its competitive moat in the defense industry.
Therefore, even though investor skepticism for this particular industry is high, especially after the massive cuts that Pentagon is forced to make in its defense budget and cut-throat competition in the market, Lockheed continues to hold a strong position in the stock market by overshadowing its major competitors. A defensive beta of 0.62 has played an integral role in maintaining the stock's resilience against negative market forces. As a result, even the disturbing recent report on jobless claims has not hindered the stock from making an adjustment in its full-year forecast. Stockholders are, therefore, keen on maintaining their positions in the stock for higher returns on investment at a relatively low risk.
Now that I have established why Lockheed is a safe and viable investment option, it is time to compare the stock's performance indicators with the three most formidable competitors in the industry to check whether they promise similar returns for investors.
Boeing (NYSE:BA) is the biggest corporation in the global aerospace and defense industry in terms of market share and capital. It generates revenues mainly through researching and developing military technologies such as combat and stealth fighter jets, missile defense systems and unmanned aerial vehicles. However, Boeing has also tapped into the commercial market and acquired a massive share through the manufacture of commercial passenger and cargo jets among other similar aerial vehicles.
This diversified product portfolio, along with an expanding global market, has earned the stock a wide competitive moat in the aerospace industry while a beta of 1.1 has offered the stock greater resistance against negative market-driving forces. The stock has signed a number of profitable deals this year such as the recent contract with Transaero Airlines on the manufacture and sale of four 787 Dreamliners. However, even though Boeing is a good investment option, Lockheed's recent defense contracts promise to generate greater cashflows, thereby offering stockholders higher returns on investment.
Northrop Grumman (NYSE:NOC) has managed to impress an identity of its own in the global aerospace industry, despite the presence of larger and more globally popular contemporaries like Boeing and Lockheed. Even in the stock market, Northrop has performed well, attracting the attention of returns-centric stockholders. However, the recent shift in market trends, which started back in June 2011, has had an adverse influence on the movement of the stock - as a consequence, growth has been sluggish.
With its uni-faceted portfolio of products and services, Northrop has found it increasingly difficult to compete against bigger competitors that command a more diversified range of products as well as a massive share of the global market. As a result, prudent investors have largely shied away from investing in the stock, especially seeing how it holds little promise for higher returns on investments. I strongly believe that Northrop is better as a long-term investment option; investors seeking short-term high-yields are better off not purchasing the stock.
Last, and perhaps the least favorite among investors in the aerospace and defense industry, Raytheon (NYSE:RTN) is another multinational corporation that has managed to make its place among the major leaders of the industry with a marginally diversified products and services portfolio.
However, Raytheon is not a widely popular investment option as of recently, particularly after an unprecedented shift in market trends. A fall in global demand for aircrafts and radical cuts in military budgets across the globe literally caused sale figures to nosedive. Although Raytheon has resolved to restrategize to win back the trust of investors, I strongly believe that it will take the stock some time to actually undergo the planned transformation. Therefore, it would be a fool's errand to invest in this volatile stock when Lockheed Martin is a safer and more viable option for investors.