Battle of the Defense Titans: Lockheed Martin vs. General Dynamics

|
Includes: GD, LMT
by: Efsinvestment

Lockheed Martin (NYSE:LMT) and General Dynamics (NYSE:GD) are among the leading aerospace and defense system companies in the world. Their main products are military vehicles, weapons systems and defense systems. Both companies are selling their products to U.S. and allied countries (sorry bad guys). The market cap for each company is about $28 billion. However, there are many differences in their ratios, past performance and future estimations. Here is a brief analysis of fundamentals (data from Finviz.com):

Lockheed Martin Corporation is an aerospace and defense systems company established in Santa Barbara, California. The company is famous for the bombing aircraft Lockheed Hudson used in World War II by the U.S. and Great Britain. Now the company is producing the F-22 Raptor fighter as well as the Polaris and Trinity missiles. In addition, Lockheed Martin is also manufacturing the F-16 Fighting Falcon, which is originally a General Dynamics product. Lockheed Martin’s market cap is $27.79B. Its current dividend yield is 3.75%. In the last five years, the EPS growth was 11.89%, and EPS is expected to grow by 20.08% this year. Estimated five-year annualized EPS growth stands at 8.29%. Trailing P/E ratio is 10.90, while the forward P/E is expected to be 9.29. Beta is 0.98. Insiders own 0.07% of the company. The company supports a strong ROE of 68.04%. On January 28, RBC Capital and Oppenheimer upgraded Lockheed Martin with the target prices of $86 and $87, respectively.

General Dynamics Corporation is a defense systems company established in New Jersey. It is the fifth largest defense contractor in the world. The company was manufacturing the F-16 Fighting Falcon, the most-produced Western jet fighter, but that was sold to Lockheed in 1993. Now it is mainly focusing on armored vehicles such as the M1 Abrams, LAV 25 and Stryker. General Dynamics’ market cap of $27.53 billion is nearly same as Lockheed Martin. The trailing P/E ratio is 10.68, and a forward P/E is 9.66. Its Beta value of 1.24 is relatively higher. The current dividend yield is 2.54%. The past five-year EPS growth rate has been 13.78%, while analysts estimate an annualized EPS growth of 9.45% for the next five-year period. Insiders own 0.47% of the shares. ROE is 19.86%. On February 8, Argus upgraded General Dynamics with the target price $86.

Historical Comparison (Data from Morningstar.com):

2007

2008

2009

2010

TTM

P/E

LMT

14.80

10.70

9.70

9.70

10.80

GD

17.50

9.30

11.00

10.40

10.70

P/B

LMT

4.40

11.80

6.80

6.60

7.30

GD

3.00

2.20

2.10

2.00

2.00

P/S

LMT

1.10

0.80

0.60

0.60

0.60

GD

1.30

0.80

0.80

0.80

0.90

P/CF

LMT

10.60

7.80

9.20

7.30

8.10

GD

12.40

7.40

9.30

9.20

9.10

Dividend Yield

LMT

1.40%

2.18%

3.11%

3.78%

-

GD

1.24%

2.33%

2.19%

2.31%

-

Gross Margin

LMT

10.11%

10.88%

9.35%

8.37%

8.12%

GD

11.43%

12.47%

17.60%

18%

18.28%

Net Margin

LMT

7.25%

7.53%

6.69%

6.39%

6.34%

GD

7.61%

8.39%

7.49%

8.08%

8.14%

The analysis of past data shows that the fundamental ratios of Lockheed Martin and General Dynamics are very close and there are only slight differences regarding volatility. Both companies were affected by the financial crisis. However, the effect was not very significant. General Dynamics shareholders reacted a little more than Lockheed Martin’s, while General Dynamics’ P/E ratio fell from 17.50 to 9.30. The P/E ratio has been more stable for General Dynamics as we can see in the past data.

Lockheed Martin’s gross margin is hovering about 9% and net margin is about 7%. The past data show that the company will continue making profits. Lockheed Martin’s gross and net margin has been very stable around 10% and 7%, respectively. General Dynamics’ gross margin is higher than Lockheed Martin’s.

Summary

Both companies have the same market cap and operate in the same business market. In addition, both companies have shown stable performances. Even during the global crisis, the depression did not have any significant effects on the profitability of these companies. Furthermore there are only slight differences between Lockheed Martin and General Dynamics. Lockheed Martin’s average EPS growth is 10.09%, and General Dynamics’ 11.62%. The average P/E ratio of Lockheed Martin and General Dynamics are 10.10 and 10.17. As calculating the T-Metrix score, Lockheed Martin got the grade of 6.85 out of 10, and General Dynamics had 6.96. While I do not favor investing in the weapons industry, these companies are generously rewarding shareholders. That is why both LMT and GD could be considered among the dividend stock picks for the next five years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

About this article:

Expand
Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Tagged: , , , Aerospace/Defense Products & Services
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here