LMT - Embedded Expectations Analysis - 2018 11 07
Lockheed Martin (LMT:USA) currently trades below recent averages relative toUAFRS-based (Uniform) Earnings, with a 17.7x Uniform P/E. At these levels, the market has muted expectations for the firm, and management has concerns about their win rates, potential DoD spending cuts, and their government-to-government procurement model
Specifically, management may lack confidence in their ability to close on the Canadian Surface Combatant contract, and to maintain a strong dividend. Moreover, they may lack confidence in their ability to sustain a high win rate, and may have concerns about their government to government procurement business model. They may also be concerned about President Trump's request for all departments to cut their spending by 5% and how that will affect the DoD. Furthermore, they may lack confidence in their ability to sustain strong F-16 sales, and to mitigate risks associated with having too much reliance on F-35 sales. In addition, they may lack confidence in their ability to maintain strong margins, driven by their RMS segment, and robust performance across all four business areas. Finally, they may be concerned about their ability to improve their cost curve for the F-35, and to continue winning bids with their current pricing strategy
Lockheed Martin is a security and aerospace company. The company has four segments: Aeronautics, which is engaged in the research, design, development, manufacture, integration, sustainment, support and upgrade of military aircraft; Missiles and Fire Control, which provides air and missile defense systems, logistics, fire control systems, and mission operations support; Rotary and Mission Systems, which provides design, manufacture, service and support for military and commercial helicopters, radar systems, and simulation and training services; Space, which researches, designs, develops, engineers and produces satellites, space transportation systems, and strategic, strike, and defensive systems.
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