Aerospace & Protection behemoth Lockheed Martin (NYSE: LMT) performs a significant function within the West’s pledge to provide Ukraine with the arsenal it must efficiently defend and reclaim its territory in opposition to the continuing Russian invasion. Today, you might be always listening to on the information that Western allies stay dedicated to supporting Ukraine by means of this endeavor for “so long as it takes.” This, after all, consists of the fixed resupply of ammunition and missiles utilized by HIMARS and different programs, which have confirmed very important for Ukrainians. The result’s Lockheed Martin experiencing an order overflow, which ought to preserve its backlog at report ranges.
I’ve been persistently bullish on Lockheed Martin over the previous couple of years (see my rankings under) on account of its a number of qualities and demanding function within the present geopolitical panorama.
However, with shares now close to an all-time excessive, I consider there are little to no positive factors to be made as we advance. Accordingly, I’m impartial on the inventory.
Why Lockheed Martin’s Provides are Crucial for Ukraine
Western Allies have been offering Ukraine with all types of navy gear, together with a number of totally different provides produced by Lockheed Martin. These embrace Javelin anti-tank missiles, which the Armed Forces of Ukrainian forces have been using efficiently in opposition to Russian armored automobiles, in addition to the corporate’s PAC-3 and THAAD interceptor missiles, counter-battery radars, and guided rocket programs, all of which have been essential for Ukraine’s counter-offensive efforts.
Probably the most essential provide, nevertheless, which makes all of the distinction for Ukrainians on this unlucky struggle, is Lockheed Martin’s HIMARS. With HIMARS’ guided missiles in a position to fireplace as much as a 270km vary, Ukrainians can reduce the Russian provide chains and hit Russian command facilities from afar with excessive precision.
HIMARS has been so efficient for Ukrainians that Lockheed Martin simply gained a $431 million contract from the U.S. Military to ship M142 Excessive Mobility Artillery Rocket System launchers at full tempo so as to quickly restock the U.S. and its allies. The U.S. and its allies are then more likely to observe by means of and ship these rockets to Ukraine, leading to one other replenishment contract for Lockheed Martin and so forth. So long as this ongoing struggle persists, that is how the chain response will proceed – sadly. With no indicators of the continuing battle decompressing, Lockheed Martin’s future backlog ought to stay at elevated ranges.
What’s This Imply for LMT’s Future Outcomes and Backlog?
It’s necessary to know that main protection contractors function on a backlog foundation. The orders accumulate, after which firms equivalent to Lockheed Martin begin to ship on this backlog whereas extra orders accumulate. The larger the backlog, the larger the cash-flow visibility, which then reduces dangers concerning Lockheed Martin’s future outcomes. The truth is, an prolonged backlog permits buyers to foretell Lockheed Martin’s medium-term efficiency extra precisely, which is great by way of inspiring confidence within the inventory and lessening uncertainty.
The corporate’s most up-to-date Q3 outcomes mirrored its ongoing essential involvement within the West’s dedication to restocking Ukraine. Web gross sales got here in at $16.6 billion, 3.8% increased year-over-year, as the corporate has been steadily increasing its manufacturing capability to fulfill the underlying order overflow. Word that these programs take a while to supply and require heavy industrial scale. Thus, don’t anticipate to see double-digit income development simply because Lockheed Martin is accepting orders at scale. As an alternative, orders accumulate, leading to a rising backlog.
Particularly, Lockheed Martin’s backlog grew almost $5 billion year-over-year by Q3, closing the quarter at an enormous $140 billion. The backlog now encompasses a 1.3 book-to-bill ratio, which in easy phrases, implies that Lockheed Martin is presently signing extra order worth than its manufacturing capability can ship. Due to this fact, its revenues over the following 1-1.5 years are basically assured. All the corporate has to do is ship. That is nice by way of enhanced visibility concerning its future financials, going again to my earlier level a couple of discount in uncertainty linked to the inventory.
Is LMT Inventory a Purchase, In response to Analysts?
So far as sentiment amongst Wall Avenue analysts goes, Lockheed Martin has a Maintain consensus score primarily based on 4 Buys, seven Holds, and two Sells assigned prior to now three months. At $473.75, the typical Lockheed Martin inventory forecast implies 1.55% draw back potential.
The Takeaway: LMT is Doubtless a Maintain
On this one, I should agree with Wall Avenue analysts and assist that Lockheed Martin is certainly a Maintain. With shares up 45% over the previous yr, most positive factors to be made have doubtless already materialized.
Administration reaffirmed its full-year 2022 EPS outlook, which they anticipate to land near $21.55. This means the inventory is now buying and selling at a ahead P/E ratio of twenty-two.3x. At greatest, this means Lockheed Martin’s future outcomes are already priced in. If, as a substitute, we’re conservative, then the inventory seems modestly overvalued. The valuation premium is smart contemplating the corporate is presently having fun with implausible tailwinds, however it must also trace towards restricted upside potential, shifting ahead.
