EUR 850.00 For Business Accounts Only

Morningstar | New Morningstar Analyst Report for Lockheed Martin

As the world's largest defense contractor, Lockheed Martin derives 60% of sales from the U.S. Department of Defense, 20% from other U.S. government agencies, and 20% from international militaries. Lockheed's incumbent position, divestment of noncore businesses, and head count reductions have enabled it to weather the recent downturn in defense spending, and we view it as well-positioned, given the improving market outlook. Lockheed operates four business segments. Aeronautics, which we forecast at just over 40% of 2018 revenue, houses fighter aircraft such as the F-22, F-35, and F-16, as well as mobility platforms like the C-130J and C-5. Total quantities for the F-35 are projected at just over 2,400 for the U.S., versus an original baseline of about 2,800. As of mid-2018, Lockheed had delivered a total of 309 F-35s. Despite recent headlines in the press targeting the program's cost and performance, we view the F-35 as a growth and profit driver. Although buys may be stretched out next decade, we don't think large cuts in total F-35 planned production will occur and note that Lockheed is likely to secure a multiple-lot contract for F-35, totaling 445 aircraft. By 2020, we project the F-35 accounting for approximately 30% of Lockheed’s total revenue.Rotary and mission systems will account for roughly one third of 2018 sales; this segment focuses on combat ships and naval electronics, and the 2015 acquisition of Sikorsky expands this business into helicopters. We believe Sikorsky will continue to face headwinds in its commercial business but the transition to production on military programs in 2020 and beyond should boost growth. The remaining two segments, missiles and fire control and space systems, comprise just over 30% of sales. Missiles and fire control is benefiting from investment in missiles and missile defense. We like Lockheed’s portfolio of franchise programs, combined with its solid management team, which continues to focus on returning excess cash to shareholders while simultaneously hunting for future growth. We believe U.S. defense spending has bottomed out and that wide-moat Lockheed is well-positioned going into a defense spending upcycle.