LMT Lockheed Martin
Entrenched defense annuity at a fair price; buybacks plus munitions growth roughly match the ~5% the market implies.
The business
Lockheed Martin designs, builds, and sustains military aircraft (F-35, F-16, C-130), missiles and fire control (PAC-3, GMLRS, JASSM, PrSM), helicopters (Sikorsky Black Hawk, CH-53K), and space systems (Trident, Orion, satellites, missile defense). Most revenue comes from the U.S. government on cost-plus and fixed-price contracts, with foreign military sales making up most of the rest. Decades-long sustainment of fielded platforms, especially F-35 support, produces recurring, annuity-like cash flow.
Quality gate · 80/100
Moat & management
| Moat | wide moat |
| Source | regulatory |
| Trajectory | stable |
| Management | adequate |
Security clearances, ITAR, sole-source incumbency on platforms that last decades, and enormous classified know-how make it effectively impossible for a new rival to displace Lockheed on programs already fielded. The weaknesses are a single dominant customer that sets the margins and fixed-price development losses (the classified Aeronautics program, MFC programs), which cap returns. New-entrant pressure from Anduril and SpaceX on low-cost autonomy and space is real but chips at the edges rather than at core franchises.
Shareholder-friendly: they return close to all FCF through a growing dividend and steady buybacks (share count falling about 3%/yr), and debt stays moderate. Execution has been the weak spot, with repeated multi-billion fixed-price charges in 2024–2025 and the NGAD loss to Boeing, and buybacks have sometimes been made at full prices.
Owner-earnings inputs
| Owner earnings (TTM) | 6.30B |
| Owner-earnings yield | 5.4% |
| Free-cash-flow yield | 7.5% |
| Growth used (normalized) | 5.5% |
| Market-implied growth (reverse DCF) | 4.7% |
| Terminal growth | 3.0% |
| Discount rate (hurdle) | 9.0% |
Projected owner earnings
| Yr | Owner earnings | Growth | PV |
|---|---|---|---|
| 1 | 6.65B | 5.5% | 6.10B |
| 2 | 7.00B | 5.2% | 5.89B |
| 3 | 7.34B | 4.9% | 5.67B |
| 4 | 7.69B | 4.7% | 5.44B |
| 5 | 8.02B | 4.4% | 5.21B |
| 6 | 8.35B | 4.1% | 4.98B |
| 7 | 8.67B | 3.8% | 4.74B |
| 8 | 8.98B | 3.6% | 4.51B |
| 9 | 9.28B | 3.3% | 4.27B |
| 10 | 9.55B | 3.0% | 4.04B |
Key risks
- Fixed-price development charges recur and erode margins (classified aero, missile programs)
- F-35 concentration: lower buy rates, sustainment cost pressure, or a 6th-gen shift away from LMT after the NGAD loss
- US budget and political risk (continuing resolutions, DOGE-style procurement reform, pricing pressure) plus disruption from low-cost autonomous entrants
Catalysts
- Munitions ramp (PAC-3, PrSM, JASSM/LRASM, GMLRS) driven by restocking and European rearmament
- Golden Dome missile defense spending and fewer program charges, restoring 11–12% segment margins
⚠ maintenance capex ≈ min(capex, D&A), capped at FCF · Price pays for ~5%/yr owner-earnings growth over 10y (reverse DCF); model credits 6%.