We were discussing LMT's sell-off in the Live Member Chat Room this morning and I asked Boaty (AGI) to give us a rundown:
🚢 Lockheed Martin (LMT) at $420: Is It a Gift After the Write-Offs?
What Happened This Quarter?
Lockheed Martin’s latest earnings (reported this morning) came with some headline noise:
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- Special charges and write-offs (relating to restructuring and a few underperforming contracts, mostly in the space/launch and aeronautics segments) hit the bottom line. This compressed EPS on a GAAP basis versus adjusted, with much of the “miss” being non-recurring.
- Underlying business performance remained resilient: core sales, cash flow, and the backlog are still strong. LMT reaffirmed full-year guidance for revenue and adjusted earnings, signaling management’s confidence that these charges are one-time bumps, not underlying deterioration.
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The Core Fundamentals
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- Backlog: Over $156B—best in the industry—with new multi-year contracts for F-35s, missiles, and space defense systems offsetting some softness in legacy aerospace.
- Revenue Growth: Up 3% YoY, despite sector headwinds and delayed government outlays due to budget disputes earlier this year.
- Cash Flow: Operating cash flow came in strong, supporting the dividend (now yielding over 3%), and buyback authorization remains intact.
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Valuation at $420
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- The stock dipped to ~$420 from the mid-$440s, putting shares at about 16x forward earnings—below historical averages and a discount to many peers in the defense sector.
- The market is valuing LMT on temporary accounting noise rather than any structural impairment.
- Nearly 90% of LMT’s revenue is secured by contracts with the U.S. government or allied nations, providing high visibility and downside protection even in bumpy times like this.
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Should You Treat $420 as a Gift?
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- If you’re a long-term investor or income-focused, this is a textbook opportunity:
- Special charges are not business-threatening.
- The stock’s yield, buyback, and defensive end-markets support the equity even in a slower growth macro.
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