LMT - Buy Lockheed Martin (LMT) stock as bullish catalysts rise
2024-06-12 03:33:34 ET
Lockheed Martin (NYSE: LMT) stock price has been a perennial laggard in the past few years even after receiving billions of dollars worth of orders and as defense spending soared. Its total return this year is 3.5%, which is lower than the S&P 500 index’s 12.70%. Similarly, its five-year total return of 53% was lower than the index’s 86.28%.
Huge backlog and improving conditions
Lockheed Martin’s performance has happened even as demand for defense equipment has risen. Russia has already invaded Ukraine, the crisis in the Middle East is continuing, while the possibility that China will invade Taiwan is accelerating.
Subsequently, as I wrote on BAE Systems , countries in the western world and the Middle East are boosting their defense spending. In the US, Senators Mitch McConnell and Roger Wicker have argued for pushing spending to 5% of the GDP.
Lockheed Martin is already benefiting from this trend as evidenced by its huge backlog and revenue growth. Its annual revenue has jumped from over $59 billion in 2019 to over $69 billion in the trailing twelve months. Its earnings per share has jumped from $22 to $27 in this period.
The same trend has happened this year. Lockheed Martin’s revenue rose to $17.2 billion in the first quarter from $15.1 billion in the same period in 2023. This trend will continue as the company guided to annual revenue of between $68 billion and $70 billion. Backlog has jumped to over $159 billion.
There are three important reasons why Lockheed Martin’s stock has more room to grow. First, the supply chain issues that existed a few months ago are now ending since the world has reopened from the Covid-19 pandemic.
Second, the company is trading at a discount. It has a forward PE multiple of 17.7, lower from the S&P 500 index average of 22. The median forward PE ratio in the manufacturing index is about 21.
Third, the company is taking measures to boost its stock price. It has continued to grow its dividend payouts for 21 years, meaning that it will soon become a dividend aristocrat. It paid dividends worth $780 million in the first quarter and repurchased 2.3 million shares for $1 billion.
Meanwhile, while defense spending is not growing as fast as it did a few years ago, pent-up spending has jumped. Analysts estimate that about $120 billion of the budgeted funds are yet to be spent and that these funds will be allocated in the next three years.,
Also, the company expects to start shipping an updated version of the F-35 plane in the fourth-quarter of this year.
Lockheed Martin stock price analysis
The LMT stock price has some technical catalysts ahead. It has formed an inverse head and shoulders pattern, which is a popular bullish sign. The stock has also formed a golden cross pattern, which is a bullish sign.
Therefore, the stock will likely continue rising in the coming weeks as buyers target the key resistance point at $490, its highest swing in April last year.
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