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Earnings Analysis Lockheed Martin

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Earnings Analysis Lockheed Martin

Lockheed Martin Corp. (NYSE: LMT) reports preliminary financial results for the quarter ended 2012-09-30.

Lockheed Martin Corp. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Lockheed Martin Corp.'s analysis versus peers uses the following peer-set: Boeing Co. (BA), European Aeronautic Defence & Space Co. EADS N.V. (EAD), General Dynamics Corp. (GD), Raytheon Co. (RTN), BAE Systems PLC (BAESF), Northrop Grumman Corp. (NOC), Dassault Aviation S.A. (AM), Rockwell Collins Inc. (COL) and Finmeccanica S.p.A. (FNC). The table below shows the preliminary results along with the recent trend for revenues, net income and returns. CapitalCUbe also published Earnings Analysis for General Dynamics Corp. (GD) based on latest data.

Quarterly (USD million) 2012-09-30 2012-06-30 2012-03-31 2011-12-31 2011-09-30
Revenues 11,869.0 11,921.0 11,293.0 12,211.0 12,119.0
Revenue Growth % (0.4) 5.6 (7.5) 0.8 4.9
Net Income 727.0 781.0 665.0 698.0 665.0
Net Income Growth % (6.9) 17.4 (4.7) 5.0 (10.4)
Net Margin % 6.1 6.6 5.9 5.7 5.5
ROE % (Annualized) 125.2 165.4 206.7 141.6 85.4
ROA % (Annualized) 7.5 8.1 7.0 7.5 7.4

Valuation Drivers

Lockheed Martin Corp. currently trades at a higher Price/Book ratio (12.2) than its peer median (4.4). LMT-US's operating performance is higher than the median of its chosen peers (ROE of 106.6% compared to the peer median ROE of 19.2%) but the market does not seem to expect higher growth relative to peers (PE of 10.5 compared to peer median of 10.5) but simply to maintain its relatively high rates of return.

The company's median net profit margins of 6.1% and relative asset efficiency (asset turns of 1.3x compared to peer median of 0.9x) give it some operating leverage. LMT-US's net margin is similar to last year's low of 5.7%, which compares to the 2008 high of 7.5%.

Economic Moat

The company has achieved better revenues growth than its chosen peers (year-on-year change in revenues of 1.5%) but its earnings growth performance has been below the median (change in annual reported earnings of 0.8% compared to the peer median of 6.6%). This suggests that, compared to its peers, the company is focused more on top-line revenues. LMT-US is currently converting every 1% of change in revenue into 0.5% change in annual reported earnings.

LMT-US's return on assets is above its peer median both in the current period (7.6% vs. peer median 6.2%) and also over the past five years (8.9% vs. peer median 4.8%). This performance suggests that the company's relatively high operating returns are sustainable.

The company's comparatively low gross margins of 12.4% versus peer median of 21.3% suggests that it has a non-differentiated strategy or is in a pricing constrained position. However, LMT-US's pre-tax margin of 8.6% is around the peer median which, when combined with the gross margin, suggests lower operating costs relative to peers.

Growth & Investment Strategy

LMT-US's revenues have grown at about the same rate as its peers (2.9% vs. 2.6% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 10.5. The historical performance and long-term growth expectations for the company are largely in sync.

LMT-US's annualized rate of change in capital of 3.8% over the past three years is higher than its peer median of 3.0%. This investment has generated an above peer median return on capital of 33.5% averaged over the same three years. Evidently, the relatively high capital investment was successful given the the relatively strong growth in its returns.

Earnings Quality

LMT-US's net income margin for the last twelve months is around the peer median (6.1% vs. peer median of 7.3%). This average margin combined with a level of accruals that is around peer median (2.6% vs. peer median of 2.5%) suggests there possibly isn't too much accrual movement flowing into the company's reported earnings.

LMT-US's accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts

Graph of Revenues Trend for Lockheed Martin Corp. (NYSE: <a class=LMT)" class="size-full wp-image-3972 alignnone" data-mce-src="http://www.capitalcube.com/wp-content/uploads/2012/10/b7451149c098c34bdbf2c1c14ee99446.png" height="288" src="http://www.capitalcube.com/wp-content/uploads/2012/10/b7451149c098c34bdbf2c1c14ee99446.png" title="Revenues Trend Quarterly" width="348" />
Graph of Revenues Trend for Lockheed Martin Corp. (NYSE: <a class=LMT)" class="alignnone size-full wp-image-3973" data-mce-src="http://www.capitalcube.com/wp-content/uploads/2012/10/ad38c5cf360aee3e9a76461217c4a4da.png" height="288" src="http://www.capitalcube.com/wp-content/uploads/2012/10/ad38c5cf360aee3e9a76461217c4a4da.png" title="Revenues Trend Annual" width="348" />
Graph of Net Margin Trend for Lockheed Martin Corp. (NYSE: <a class=LMT)" class="alignnone size-full wp-image-3976" data-mce-src="http://www.capitalcube.com/wp-content/uploads/2012/10/2bf3f7c9daf439f76c829ff38b5c3e3d.png" height="288" src="http://www.capitalcube.com/wp-content/uploads/2012/10/2bf3f7c9daf439f76c829ff38b5c3e3d.png" title="Net Margin Trend Quarterly" width="348" />
Graph of Net Margin Trend for Lockheed Martin Corp. (NYSE: <a class=LMT)" class="alignnone size-full wp-image-3975" data-mce-src="http://www.capitalcube.com/wp-content/uploads/2012/10/15b07dbb68575e1a5b0b4fa5f998037d.png" height="288" src="http://www.capitalcube.com/wp-content/uploads/2012/10/15b07dbb68575e1a5b0b4fa5f998037d.png" title="Net Margin Trend Annual" width="348" />
Graph of Accruals Trend (% revenues, Quarterly) for Lockheed Martin Corp. (NYSE: <a class=LMT)" class="alignnone size-full wp-image-3977" data-mce-src="http://www.capitalcube.com/wp-content/uploads/2012/10/bf00e862cda0fd8fcf296b2a4e71e0f4.png" height="288" src="http://www.capitalcube.com/wp-content/uploads/2012/10/bf00e862cda0fd8fcf296b2a4e71e0f4.png" title="Accruals Trend Quarterly" width="348" />
Graph of Accruals Trend (% revenues, Annual or TTM) for Lockheed Martin Corp. (NYSE: <a class=LMT)" class="alignnone size-full wp-image-3974" data-mce-src="http://www.capitalcube.com/wp-content/uploads/2012/10/67147b0c3985c86827e889cffb0caec9.png" height="288" src="http://www.capitalcube.com/wp-content/uploads/2012/10/67147b0c3985c86827e889cffb0caec9.png" title="Accruals Trend Annual" width="348" />

Company Profile

Lockheed Martin Corp. is a global security and aerospace company that is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. It also provides a broad range of management, engineering, technical, scientific, logistic, and information services. The company operates its business through the following segments: Aeronautics, Electronic Systems, Information Systems & Global Solutions, and Space Systems. The Aeronautics segment is engaged in the research, design, development, manufacture, integration, sustainment, support, and upgrade of advanced military aircraft, including combat and air mobility aircraft, unmanned air vehicles, and related technologies. It also provides logistics support, sustainment, and upgrade modification services for its aircraft. The Electronic Systems segment provides surface ship and submarine combat systems; sea-based missile defense systems; ship systems integration; littoral combat ships; nuclear instrumentation and control systems for naval submarines, aircraft carriers, and surface warships; air and defense missile systems; air-to-ground precision strike weapons systems; tactical missiles; munitions; fire control and navigation systems for rotary and fixed-wing aircraft; manned and unmanned ground vehicles; mission operations support, readiness, engineering support, and integration services; simulation and training services; and energy programs. The Information Systems & Global Solutions segment provides management services, information technology solutions, and advanced technology expertise across a broad spectrum of applications. It provides network-enabled situation awareness, delivers communications and command and control capability through complex mission solutions for defense applications, and integrates complex global systems to help its customers gather, analyze, and securely distribute critical intelligence data. The Space Systems segment is engaged in the design, research and development, engineering, and production of satellites, strategic and defensive missile systems, and space transportation systems, including activities related to the planned replacement of the Space Shuttle. Lockheed Martin was founded in March 1995 and is headquartered in Bethesda, MD.

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