Earnings Analysis: Lockheed Martin

| About: Lockheed Martin (LMT)
This article is now exclusive for PRO subscribers.

Lockheed Martin Corp. (NYSE:LMT) reports preliminary financial results for the quarter ended 2012-09-30.

Lockheed Martin Corp. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

Lockheed Martin Corp.'s analysis versus peers uses the following peer-set: Boeing Co. (NYSE:BA), European Aeronautic Defence & Space Co. EADS N.V. (NYSEMKT:EAD), General Dynamics Corp. (NYSE:GD), Raytheon Co. (NYSE:RTN), BAE Systems PLC (OTCPK:BAESF), Northrop Grumman Corp. (NYSE:NOC), Dassault Aviation S.A. (NYSE:AM), Rockwell Collins Inc. (NYSE:COL) and Finmeccanica S.p.A. (FNC). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.



Quarterly (USD million) 2012-09-30 2012-06-30 2012-03-31 2011-12-31 2011-09-30
Revenues 11,869.0 11,921.0 11,293.0 12,211.0 12,119.0
Revenue Growth % (0.4) 5.6 (7.5) 0.8 4.9
Net Income 727.0 781.0 665.0 698.0 665.0
Net Income Growth % (6.9) 17.4 (4.7) 5.0 (10.4)
Net Margin % 6.1 6.6 5.9 5.7 5.5
ROE % (Annualized) 125.2 165.4 206.7 141.6 85.4
ROA % (Annualized) 7.5 8.1 7.0 7.5 7.4

Valuation Drivers

Lockheed Martin Corp. currently trades at a higher Price/Book ratio (12.2) than its peer median (4.4). Lockheed Martin Corp.'s operating performance is higher than the median of its chosen peers (ROE of 106.6% compared to the peer median ROE of 19.2%) but the market does not seem to expect higher growth relative to peers (PE of 10.5 compared to peer median of 10.5) but simply to maintain its relatively high rates of return.

The company's median net profit margins of 6.1% and relative asset efficiency (asset turns of 1.3x compared to peer median of 0.9x) give it some operating leverage. Lockheed Martin Corp.'s net margin is similar to last year's low of 5.7%, which compares to the 2008 high of 7.5%.

Economic Moat

The company has achieved better revenues growth than its chosen peers (year-on-year change in revenues of 1.5%) but its earnings growth performance has been below the median (change in annual reported earnings of 0.8% compared to the peer median of 6.6%). This suggests that, compared to its peers, the company is focused more on top-line revenues. Lockheed Martin Corp. is currently converting every 1% of change in revenue into 0.5% change in annual reported earnings.

Lockheed Martin Corp.'s return on assets is above its peer median both in the current period (7.6% vs. peer median 6.2%) and also over the past five years (8.9% vs. peer median 4.8%). This performance suggests that the company's relatively high operating returns are sustainable.

The company's comparatively low gross margins of 12.4% versus peer median of 21.3% suggests that it has a non-differentiated strategy or is in a pricing constrained position. However, Lockheed Martin Corp.'s pre-tax margin of 8.6% is around the peer median which, when combined with the gross margin, suggests lower operating costs relative to peers.

Growth & Investment Strategy

Lockheed Martin Corp.'s revenues have grown at about the same rate as its peers (2.9% vs. 2.6% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 10.5. The historical performance and long-term growth expectations for the company are largely in sync.

Lockheed Martin Corp.'s annualized rate of change in capital of 3.8% over the past three years is higher than its peer median of 3.0%. This investment has generated an above peer median return on capital of 33.5% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

Lockheed Martin Corp.'s net income margin for the last twelve months is around the peer median (6.1% vs. peer median of 7.3%). This average margin combined with a level of accruals that is around peer median (2.6% vs. peer median of 2.5%) suggests there possibly isn't too much accrual movement flowing into the company's reported earnings.

Lockheed Martin Corp.'s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts

Company Profile

Lockheed Martin Corp. is a global security and aerospace company that is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. It also provides a broad range of management, engineering, technical, scientific, logistic, and information services. The company operates its business through the following segments: Aeronautics, Electronic Systems, Information Systems & Global Solutions, and Space Systems. Lockheed Martin was founded in March 1995 and is headquartered in Bethesda, MD.


The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party's use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you're agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website analytixinsight.com.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.