Lockheed Martin Stock Aims for a Fresh All-Time High

Key Points

• Lockheed Martin had a solid quarter supported by strength in all segments. 
• The healthy balance sheet supports robust capital returns, including dividends and share-reducing buybacks.
• The company reaffirmed guidance, which may be overly cautious in light of geopolitical conflict and defense spending. 

Lockheed Martin's NYSE: LMT stock price has trended higher for years, supported by robust defense spending and, more recently, conflict in Ukraine and the Middle East. The takeaway from the Q1 2024 earnings report is that business is good, very good, and that guidance is cautious. The Q1 outperformance may be a one-off; it may not persist through the year’s end, but it indeed suggests otherwise. 

Internal metrics show strength in the two segments whose products are most disposable: Rotary & Mission Systems and Missiles & Fire Control.  Helicopters aren’t intended to be disposable, but missiles, drones, and logistics systems are. Because there is no foreseeable end to the conflicts driving need, investors should expect to see Lockheed Martin exceed guidance, if not increase it, as the year progresses. Other reasons to suspect outperformance include the latest US aid package to Ukraine and Israel, worth $95 billion if passed.  

Lockheed Martin has a Strong Quarter. All Segments Outperform

Lockheed Martin had a solid quarter with strength in all segments. The company produced revenue of $17.19 billion, a gain of 13.8% over last year. The top line includes the impact of an extra a13th week but still outpaced the consensus by 750 basis points. Missiles & Fire Control was the strongest segment, at 25%, followed by a 16.5% increase in Rotary & Missions Systems, a 10.5% increase in Space, and a 9.2% increase in Aeronautics. The company highlighted Space's strength, pointing out its importance in advancing security solutions. 

Margin contracted compared to last year but due to investment in production capability and R&D of advanced products. Regardless, the net income of $1.5 billion and FCF of $1.3 billion are roughly flat compared to last year, allowing the company to maintain its healthy balance sheet while repurchasing shares and paying dividends. The news is that adjusted earnings of $6.33 beat Marketbeat’s reported consensus by $.47 or 800 basis points, which aligns with the idea that guidance is cautious. 

Lockheed Martin reaffirmed its guidance for 2024. The company expects revenue and earnings in a range that aligns with the analysts' consensus but only about 2.5% revenue growth compared to the solid double-digit produced in Q1. The backlog also aligns with the idea that the guidance is cautious. The backlog grew by 10% to $159.4 billion, or enough to sustain operations at Q1 levels for more than two years. 

Lockheed Martin Capital Returns are On-Target

Lockheed Martin carries debt and leaned into this quarter, issuing enough for $2 billion in net proceeds, but it is not a red flag. The debt is to help sustain growth. Balance sheet highlights include a build in the cash position despite dividends, share repurchases, and CAPEX spending. Highlights also include a build of current and total assets. The leverage ratio remains low at 2.9X shareholder equity. 

The dividend is healthy and reliable. The 2.75% distribution yield is about 44% of the earnings outlook, and payments are increasing. The company has increased for twenty-one consecutive years and is on track for #22 this summer. Share repurchases are robust and reduced the diluted count by an average of 5.5% at the end of Q1. 

The Technical Outlook for LMT Stock Bullish with a Chance of New Highs

LMT stock is trending higher and moving upwards following the Q1 release. The action is light but aligns with the trend and may lead to higher prices over the next few weeks and months. However, there are signs of resistance near $467, so gains may be capped. If the market can not exceed that level soon, it could keep moving sideways until it reaches the long-term uptrend later this year. If the market can sustain upward movement now, the next target for critical resistance is near $475 and then $500.