On May 22, 2013, the shares of Lockheed Martin Corporation (LMT) hit a 52-week high of $107.93. Lockheed Martin registered positive earnings surprises in three of the last four quarters, with an average beat of 16.56%. Another defense operator L-3 Communications Holdings Inc. (LLL) touched its 52-week high of $87.96 on the same day.
The first quarter 2013 results of Lockheed Martin were higher than our expectation. The outperformance was attributed to better-than-expected sales volume and strong segment operating profit and cash from operations.
Despite the threat of sequestration in the defense budget, the variety of product offerings, strong program execution and cost reduction measures will help the company to sustain its profitability. This defense contractor continues to receive orders from its global customer base and exited the quarter with a total backlog of $77.9 billion.
In addition, Lockheed Martin’s consistent investment in research and development work to improve and introduce products that can address global security needs, will help it to stay ahead of its competitors.
We expect long-term earnings growth of 6.82% on the back of sales growth of 2.5%. The Zacks Consensus Estimate for 2013 is $8.99, reflecting year-over-year growth of 6.36%.
Lockheed Martin has been consistently increasing the value of its shareholders. In the first quarter, the company repurchased 5 million shares for nearly $460 million and paid dividend worth $400 million.
The present valuation reflects that the company’s shares are trading at a discount compared to its peers. The shares of Lockheed Martin currently trade at 11.85x 12-month forward earnings, a 14.5% discount to the peer group average of 13.86x. Its price-to-book ratio of 0.73 is at a 10.97% discount to the peer group average of 0.82.
Lockheed currently retains a Zacks Rank #3 (Hold). Other companies in the industry which are worth considering are Erickson Air-Crane Incorporated (EAC) and Wesco Aircraft Holdings Inc. (WAIR). The former presently has a Zacks Rank # 1 (Strong Buy) while the latter has a Zacks Rank # 2 (Buy).
Based in Bethesda, Maryland, Lockheed Martin is a global security company that is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.
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