Lockheed Martin (LMT) is the world’s largest defense company; about 60% of its revenues comes from the U.S. Department of Defense, notes Ben Reynolds, growth and income specialist and editor of Sure Passive Income.
The company consists of four business segments: Aeronautics (~40% sales) — which produces military aircraft like the F-35, F-22, F-16, and C-130; Rotary and Mission Systems (~26% sales) — which houses combat ships, naval electronics, and helicopters; Missiles and Fire Control (~16% sales) — which creates missile defense systems; and Space Systems (~17% sales) - which produces satellites.
The company reported second-quarter results on July 26th. All four business segments again increased net sales. The Aeronautics segment increased net sales 3% due to increased production of the F-16 and F-35. The Missiles and Fire Control segment increased sales 5% due to higher sales of sensors, and tactical and strike missiles.
Rotary and Mission Systems net sales increased 5% on higher volumes for Sikorsky helicopter programs. The Space segment sales increased 10% due to higher volumes in Atomic Weapons Establishment, national security space programs, and strategic and missile defense programs.
The company’s outlook for 2021 was raised, with the company now expecting total revenue of $67.3 billion to $68.7 billion, along with EPS in a range of $26.70 to $27.00.
With an expected dividend payout ratio of 39%, the company has a safe dividend. Lockheed Martin is an entrenched military contractor. It produces aircraft and other platforms that serve as the backbone for the U.S. military and other militaries around the world.
This leads to a competitive advantage as any new technologies would have to significantly outperform existing platforms. These platforms have decades long life cycles and Lockheed Martin has the expertise and experience to perform sustainment and modernization.
In addition, these characteristics lead to a good degree of recession resistance. During the 2008 through 2011 period, Lockheed Martin generated earnings-per-share of $7.86, $7.78, $7.23, and $7.82, while the dividend kept on increasing.
In the 2011 through 2020 period, Lockheed Martin grew its earnings-per-share by a 13.5% average annual compound rate. This result was driven by 3.9% yearly revenue growth that was significantly aided by a profit margin increasing from 5.7% to 10.5% and a share count that declined by 1.6% per year.
We expect 8% annual earnings-per-share growth over the next five years. Lockheed Martin has a project backlog of approximately $140 billion, or more than two years of revenue.
Growth will come organically as well as through acquisitions, such as the company’s recent $4.6 billion takeover of Aerojet Rocketdyne Holdings. The acquisition will boost Lockheed’s propulsion systems services. The company also announced a new $5 billion share repurchase plan, good for 5% of the current float.
