Although large charges weighed heavily on Lockheed Martin’s LMT) second-quarter results, the futures of several of the defense conglomerate’s major initiatives appears to be quite bright. Also making LMT stock attractive for some investors are the strong, positive catalysts with which the White House may provide the firm.
Finally, LMT’s low valuation and the stock’s substantial dividend yield make the risk posed by the name quite low for investors.
High Charges and Very Promising Initiatives
In conjunction with LMT’s Q2 results, the company took $1.6 billion of charges, including $950 million of “pretax reach forward losses” related to a classified program being carried out by its Aeronautics unit and $570 million of pretax losses spurred by changes in its maritime helicopter deal with Canada.
On the other hand, however, the company’s Patriot Advanced Capability-3 (PAC-3) anti-missile system has strong momentum, as the U.S. Navy is asking Congress for funding to purchase PAC-3s for the first time, while the Army has sought permission to quadruple its utilization of the system, LMT CEO Jim Taiclet reported on the company’s Q2 earnings call.
Also apparently performing well in general is the company’s F-35 business, despite its continued cost and technical challenges, along with the Pentagon’s decision to forego purchasing a new generation of the fighter plane. Specifically, LMT handed over 50 of the planes in Q2 and expects to deliver 170-190 of them in 2025, while the demand for the plane among foreign countries remains “strong,” Taiclet noted. Additionally, the company has held “extremely high level” talks with the Pentagon about providing enhanced F-35s, which the company calls a “fifth-generation-plus” version of the aircraft.
Finally, the Trump administration has requested almost $400 million to enable the production of LMT’s new hypersonic weapon, while LMT recently unveiled its new autonomous stealth drone which can carry out many types of missions in conjunction with crewed planes. Taken together, these two initiatives could significantly move the needle for LMT’s financial results and LMT stock over the longer term.
Potential Strong, Positive Catalysts From the White House
Indicating that Taiclet expects Lockheed to play a central role in Golden Dome, the CEO said, “We can leverage (LMT’s) experience (in missile defense) as well as our expertise in space satellite reconnaissance, tracking and communications, and the next generation interceptor to rapidly deliver homeland defense capabilities for Golden Dome.”
Further, Commerce Secretary Howard Lutnick on August 28 reported that the administration was considering taking an equity stake in LMT. Such a move would likely push up the conglomerate’s shares significantly because it would meaningfully reduce the number of the company’s shares available to buy and provide the firm with a meaningful cash infusion.
And after President Donald Trump said he believes that Ukraine can regain all of the territory that it lost to Russia, the Ukraine War looks poised to continue indefinitely, likely enabling Lockheed to continue selling weapons for use by Ukraine for the foreseeable future.
Valuation and the Bottom Line on LMT
Lockheed’s forward price-earnings ratio is just 16.3 times, while its price-sales ratio is also low, coming in at 1.6 times. Throw in the name’s meaningful dividend yield of 2.7%, and it’s clear that LMT stock poses little risk.
As a result, it’s a very good pick for value investors looking for low-risk picks.
*This article is intended to be informational only; it is not financial advice.
