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I last reviewed Lockheed Martin (LMT) in this July 19 post at which time LMT had just raised its FY2023 adjusted diluted EPS guidance to ~$27.00 – ~$27.20 from the prior ~$26.60 - ~$26.90 guidance.
Based on my assessment, I increased my exposure by 50 shares in one of the 'Core' accounts within the FFJ Portfolio on July 18. Using my ~$455 purchase price, the forward adjusted diluted PE range was ~16.7 - ~16.85.
In addition, the forward-adjusted earnings broker estimates and my ~$455 purchase price gave me the following forward-adjusted diluted PE levels:
- FY2023 - 21 brokers - mean of $27.10 and low/high of $26.75 - $27.66. The forward adjusted diluted PE was ~16.8.
- FY2024 - 22 brokers - mean of $28.07 and low/high of $26.84 - $29.01. The forward adjusted diluted PE was ~16.2.
- FY2025 - 17 brokers - mean of $29.01 and low/high of $25.78 - $30.97. The forward adjusted diluted PE was ~15.7.
My interest is to acquire shares in high-quality companies whose valuations appear to have come under pressure for what I deem to be no valid reason.
When I wrote my April 18, 2023 post, LMT's share price exceeded $500. LMT's valuation, in my opinion, made no sense.
After mid-April, LMT's share price has experienced weakness. As luck would have it, LMT's share price plunged ~$21/share from a ~$445 September 5 close to a ~$424 September 6 close.
F-35 Technology Refresh 3 Update
On September 6, LMT updated its F-35 Technology Refresh 3 (TR-3) schedule projections.
LMT currently anticipates delivering the first TR-3 jet between April and June 2024 and now expects to deliver 97 aircraft in 2023 (all in the TR-2 configuration); this does not currently impact LMT's 2023 financial outlook.
LMT is producing F-35s at a rate of 156/year and management expects this pace to continue while simultaneously working to finalize TR-3 software development and testing.
The company also remains focused on receiving the necessary hardware from suppliers to deliver this critical combat capability for the F-35.
The number of 2024 F-35 deliveries will depend on when the first TR-3 aircraft is delivered and the time needed to complete the customer’s acceptance process. LMT has indicated it will continue to assess impacts to 2024 and updates will be provided in due course.
Credit Ratings
LMT's senior unsecured domestic currency debt ratings are:
- Moody's: A2 (upgrade from A3 on August 14, 2023)
- S&P Global: A- (stable outlook)
- Fitch: A- (stable outlook)
The ratings from S&P Global and Fitch are the lowest tier of the upper-medium investment grade level; the rating assigned by Moody's is one tier higher.
All 3 ratings define LMT as having a STRONG capacity to meet its financial commitments. LMT is, however, somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.
Dividend and Dividend Yield
The following are LMT's dividend yield at the time of prior reviews.
- January 25, 2022: shares were trading at ~$380 - the $2.80 quarterly dividend yielded ~3%.
- April 19, 2022: shares were trading at ~$460 - the $2.80 quarterly dividend yielded ~2.4%.
- July 19, 2022: shares were trading at ~$390 - the $2.80 quarterly dividend yielded ~2.9%.
- October 18, 2022: shares were trading at ~$432 - the $3.00 quarterly dividend yielded ~2.78%.
- January 25, 2023: shares were trading at ~$452.50 - the $3.00 quarterly dividend yielded ~2.65%.
- April 18, 2023: shares were trading at ~$501.50 - the $3.00 quarterly dividend yielded ~2.40%.
- July 18, 2023: shares were trading at ~$455.70 - the $3.00 quarterly dividend yielded ~2.63%.
When I completed my July 19 post, LMT was scheduled to distribute its 4th consecutive quarterly $3.00 dividend on September 22 (see dividend history). Based on recent dividend history, I forecast a $0.20/share dividend increase in mid-September. I, therefore, envisioned the next 4 quarterly dividend payments would total $12.60 ((1 x $3) + (3 x $3.20)). Using my July 18 ~$455 purchase price, the forward dividend yield was ~2.77%.
On September 6, I acquired another 50 shares @ ~$430. Using my $12.60 forward dividend estimate and my purchase price, the forward dividend yield is ~2.93%.
Valuation
These are LMT's forward-adjusted diluted PE levels using forward-adjusted diluted earnings estimates from the brokers which cover LMT and my ~$430 purchase price:
- FY2023 - 22 brokers - mean of $27.14 and low/high of $26.76 - $27.46. Using the current mean, the forward adjusted diluted PE is ~15.84.
- FY2024 - 23 brokers - mean of $28.10 and low/high of $27.16 - $28.75. Using the current mean, the forward adjusted diluted PE is~15.3.
- FY2025 - 18 brokers - mean of $29.05 and low/high of $26.74 - $31.25. Using the current mean, the forward adjusted diluted PE is ~14.8.
If LMT were to only generate adjusted diluted EPS of $26.50 in FY2023, the forward adjusted diluted PE would be ~16.23. I consider LMT to be fairly valued at this level.
NOTE: I place little reliance on FY2024 and FY2025 estimates since so much can change over the next couple of years!
Final Thoughts
LMT was my 9th largest holding when I completed my Mid-2023 Investment Holdings Review. At the time I held 459 shares with a value of USD $211,314. I now hold 559 shares with a value of USD $237,016. Unless I perform a more current investment holdings review, I can only surmise that LMT is still a top-10 holding.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long LMT.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your own research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
