{"id":57096,"date":"2025-01-30T05:59:31","date_gmt":"2025-01-30T05:59:31","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/investing\/lockheed-martins-share-price-weakness-is-a-buying-opportunity\/"},"modified":"2025-01-30T05:59:31","modified_gmt":"2025-01-30T05:59:31","slug":"lockheed-martins-share-price-weakness-is-a-buying-opportunity","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=57096","title":{"rendered":"Lockheed Martin’s Share Price Weakness Is A Buying Opportunity"},"content":{"rendered":"


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\"Lockheed<\/p>\n

On January 27, Lockheed Martin’s (LMT) shares closed at ~$503.70. Following the release of Q4 and FY2024 results and FY2025 outlook on January 28, 2025, the share price plunged ~$46. I now view Lockheed Martin’s share price weakness as a buying opportunity and acquired an additional 50 shares @ $457.75 in one of the ‘Core’ accounts in the FFJ Portfolio on January 28. This brings my LMT exposure to 620 shares.<\/p>\n

I last reviewed LMT in this July 24, 2024 post<\/a><\/strong> at which time the most currently available financial information was for Q2 and YTD2024.<\/p>\n

When I completed my 2024 Mid Year FFJ Portfolio Review<\/strong><\/a>, I held 565 shares in one of the ‘Core’ accounts within the FFJ Portfolio<\/a><\/strong> and it was my 6th largest holding. At the time of my 2024 Year End Review<\/a><\/strong>, I held 570 shares\u00a0<\/strong>and it was still my 6th largest holding. The automatic reinvestment of dividend income explains the slight increase in the number of shares.<\/p>\n

Business Overview<\/strong><\/span><\/span><\/h2>\n

LMT is a global security and aerospace company that operates in 4 business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. Its main areas of focus are in defense, space, intelligence, homeland security and information technology, including cybersecurity.<\/p>\n

It is engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.<\/p>\n

Principal customers are agencies of the U.S. Government. It, however, also serves international customers with products and services that have defense, civil and commercial applications.<\/p>\n

A good way to learn about a company is to review the company’s website and Part 1 Item 1 – Business and Item 1A – Risk Factors in the FY2023 Form 10-K that is accessible through the SEC Filings section<\/a> of the company’s website.<\/span><\/p>\n

Evolving Landscape<\/strong><\/span><\/h3>\n

The newly-created Department of Government Efficiency (DOGE) has some some defense stock investors on edge because of the uncertainty about what changes will be made and their impact.<\/p>\n

A considerable amount of money, however, is wasted because of complex rules governing military planning and procurement. Current major industry participants acknowledge this. Some existing participants might welcome a more streamlined process even at the expense of more competition if changes lead to progress in speed and technology innovation.<\/p>\n

How LMT is impacted from any changes remains to be seen. I think it is unlikely LMT’s largest program (the F-35) will experience major cuts for economic, strategic, and political reasons. Keep in mind, that this program accounts for ~26% of LMT’s sales AND it is a meaningful program for 1,900 suppliers across 48 U.S. states and 10 separate countries. We also have to consider the RTX Corp and Northrop Grumman and their suppliers also have a stake in the F-35 program.<\/p>\n

The needs of the military organizations and the governments traditionally dictated the pace, structure, and process for technological innovations. The pace and focus, however, is increasingly being set by a progressively vocal and powerful technology startup industry and their funders and their raft of Patriotic capital<\/a> initiatives such as:<\/p>\n

The evolution of the aerospace and defense industry should be expected given the total addressable market.<\/p>\n

Based on Verified Market Research’s 2024 – 2031 military artificial intelligence market valuation<\/a>, Military Artificial Intelligence (AI) systems are expected to increase the market size from ~$13.24B in 2024 to ~$35.54B in 2031. This is because AI is increasingly being adopted to enhance decision-making, automation, and operational efficiency. If these estimates end up being accurate, we are looking at a CAGR of 14.49% during this period.<\/p>\n

Estimates vary depending on the market data services consulted. Nevertheless, estimates are being regularly revised higher. This is not surprising considering global defense budgets have been ballooning against the backdrop of ongoing conflicts and a general shift toward militarization in the last 24 – 36 months.<\/p>\n

The Stockholm International Peace Research Institute notes that in 2023, global defense\u00a0spending<\/a> reached a record level of just over $2T. The US accounted<\/a> for nearly 40% of global defense spending in 2023 having spent ~$877B.<\/p>\n

NATO’s Public Diplomacy Division report<\/a> published on June 17, 2024 shows the magnitude of each member’s defense expenditure in 2014 – 2024 (the 2023 and 2024 figures are estimates).<\/p>\n

Historically, Silicon Valley (SV) had shunned defense technology for fear of being associated with controversial overseas conflicts. In addition, SV has been wary of the Pentagon\u2019s notoriously slow and risk-averse procurement process, which favors established defense contractors. It is not surprising, therefore, that venture capitalist (VC) funding has been directed primarily toward SV products for the civilian market.<\/p>\n

With the war in Ukraine and geopolitical tensions with China, however, investment in military tech start-ups is booming. With the impressive growth opportunities in the defense market, VCs with large amounts of capital are increasingly directing their energy toward this market. From 2019 to 2022, US VC funding for military technology startups has doubled<\/a>, and since 2021, the defense technology sector has seen an\u00a0injection<\/a> of $130B in VC money.<\/p>\n

Bookings’ March 26, 2024 The evolution of artificial intelligence (AI) spending by the U.S. government<\/a> research report, estimates that defense contracts for AI-related technologies grew in value by nearly 1,200% in from August 2022 to August 2023.<\/p>\n

With the US government awarding an increasing number of lucrative contracts to Silicon Valley companies that make cutting-edge defense systems, we need to monitor the evolution of the military and defense industry.<\/p>\n

Financials<\/strong><\/span><\/span><\/h2>\n

Q4 and FY2024 Results<\/strong><\/span><\/span><\/h3>\n

Refer to the material available in the Quarterly Results section<\/a> of LMT’s website.<\/p>\n

The following images reflect the highlights for LMT as a whole. The Q4 2024 Earnings Presentation, however, provides Sales and Operating Profit results for each of LMT’s 4 business segments.<\/p>\n

LMT advanced strategic and technical and operational capabilities by investing over $1.1B in Q4 toward independent R&D and CAPEX projects, bringing full-year internal investment to $3.3B.<\/p>\n

From a capital allocation perspective, the financial focus remains on free cash flow (FCF) and FCF\/share.<\/p>\n

In the second half of 2024, LMT held extensive negotiations with the US military over future F-35 orders AND rolled out major software upgrades to the F-35 fleet. It is now in process of catching up on the delivery of over 400 jets on backorder.<\/p>\n

\"Lockheed<\/p>\n

\"LMT<\/p>\n

**While the FY2024 financial highlights reflect a 1.2x book-to-bill ratio, LMT recorded over $29B of orders in Q4 for a book-to-bill ratio of ~1.6x.**<\/p>\n

Earnings Impacts of Classified Program Losses and Other Items<\/strong><\/span><\/h3>\n

LMT’s Q4 and FY2024 results are messy.<\/p>\n