Peter Mycroft Psaras'  Instablog

Over the last seven days Lockheed Martin has won four nice contracts totaling $1.169 Billion to add to their backlog of orders, which prior to these orders stood at $76.4 Billion. 

Here are the orders;

1)      The U.S. Department of Defense's Missile Defense Agency (MDA) awarded Lockheed Martin a $1 billion contract for continued development and evolution of the Aegis Ballistic Missile Defense (BMD) Weapon System.

2)       Lockheed Martin has been awarded $170 million in new Health & Human Services (HHS) information technology contracts, all geared toward improving efficiency in our nation's health systems.

3)      Lockheed Martin was awarded an $853.3 million contract from the U.S. Navy for the Trident II missile production and deployed system support. Work is expected to be completed by Dec 30, 2013.

4)      Lockheed Martin Corp. received a $145 million contract from the Environmental Protection Agency to provide support during environmental emergencies in the U.S. and its territories.

The company stock is currently trading at a price to free cash flow (PFCF) of  9 and a Free Cash Flow Return on Invested Capital (FROIC) of 34%.

For those who don't know;

PFCF =Market Price/ (Cash flow per share-Capital Spending per share)

FROIC = FCF per share/ (long term debt per share + shareholders equity per share)

FROIC basically tells you how much return in free cash flow a company generate for every dollar of Total Capital they employ.

I consider FROIC the primary determining factor in identifying growth companies as you can compare every company (except Financials) on an equal basis. The question I ask every company I analyze is = how much return (in percent) in FCF are you going to give me for every dollar of total capital you invest?

When investing I look for PFCF below 15 times and FROIC above 20%+. When you are lucky enough to find a combination of the two you find a perfect balance of growth + value and you get capital appreciation through capital preservation.

Lockheed Martin reported earnings last week that beat estimates but guided lower for 2010. With these orders added in the new figure for backlog of orders is now $77.6 Billion. Lockheed Martin is a stock for those who want to practice Capital Appreciation through Capital Preservation. It is both a value and high growth play and pays a nice dividend of 3.5% as well. 

Disclosure : Long LMT

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