Tag: Lockheed Martin Corporation (LMT)

Is Lockheed Martin a Buy as Global Defense Budgets Surge?

Posted on by The INO.com Team

Global defense spending has sharply risen in recent years, driven by escalating geopolitical tensions. The Russia-Ukraine war, concerns over China’s intentions in the Asia-Pacific, and the ongoing Israel-Gaza conflict have all contributed to a 5.4% annual increase in military budgets since 2021. This surge has pushed global defense spending to an impressive $2.3 trillion in 2024, up from $2 trillion just a few years ago.

With regional conflicts intensifying, especially involving Israel and Iran-backed forces, nations are boosting their military investments to ensure they’re prepared for any potential escalation. For instance, the U.S. alone has spent over $22 billion on military operations in the Middle East since the onset of the Israel-Gaza conflict in October 2023, including support for Israel, air defense systems, and combating Iranian-backed militants.

As a result, defense-related stocks have soared, with the S&P 500 Aerospace & Defense Industry Index up 20% this year. Moreover, investors’ interest in this sector is evident from the inflows of the iShares U.S. Aerospace & Defense ETF (ITA), which are nearing record highs. As global defense budgets continue to grow, the sector is expected to expand at a CAGR of 3.5%, reaching $3.08 trillion by 2032.

Is Lockheed Martin a Buy as Global Defense Budgets Surge?

With defense stocks in high demand, fundamentally robust companies like Lockheed Martin Corporation (LMT) seem well-positioned to capitalize on this long-term trend.

As the largest defense contractor in the United States, Lockheed benefits from its extensive presence in both domestic and international defense sectors. The company’s innovative products and solid financial standing have helped its stock soar more than 50% over the past year and almost 33% year-to-date. With such impressive gains, it’s no surprise that many investors are eager to add LMT to their portfolios.

However, before making any quick decisions, let’s take a closer look at what’s driving this surge and whether the stock’s growth prospects are worth the risks.

What’s Behind Lockheed’s Recent Surge?

The company’s reputation for delivering innovative, high-demand military technology enables it to enjoy a continuous flow of orders for its wide range of defense products, from stealth fighter aircraft and combat ships to military radars and lethal missiles. With the U.S. being the world’s top weapons exporter, LMT’s solid foothold in this market gives it a significant advantage over its peers.

The company recently announced a flurry of significant government contracts, securing deals worth hundreds of millions. These include $422 million for integrating the Czech Republic into the F-35 Joint Strike Fighter program, $3.23 billion for air-to-surface missiles, $358 million added to a $1.1 billion Foreign Military Sales missile procurement, and $3.9 billion for Trident II D5 missile production, along with $321 million for a U.S. Missile Defense contract. Impressive, isn’t it?

But that’s not it; the company’s bright prospects are reflected in its financials, too! LMT’s net sales increased 8.6% year-over-year to $18.12 billion in the fiscal 2024 second quarter (ended June 30). Its consolidated operating profit grew marginally from the year-ago value to $2.15 billion, while its non-GAAP net earnings amounted to $1.70 billion in the same period.

The company’s adjusted earnings for the quarter rose 5.6% year-over-year to $7.11 per share, beating analyst estimates by 10.2% due to strong sales and improved profits. Also, its free cash flow increased by 95.3% from the year-ago value to $1.51 billion.

As of June 30, 2024, the company’s cash and cash equivalents increased to $2.52 billion from $1.44 billion recorded as of December 31, 2023. Buoyed by this solid performance, LMT revised its full-year outlook, projecting EPS in the range of $26.10 to $26.60, with expected revenue between $70.50 billion and $71.50 billion.

While analysts predict a slight 4.6% drop in EPS for the year ending December 2024, its revenue is expected to grow by 5.4% year-over-year to $71.23 billion. For fiscal 2025, forecasts suggest revenue and EPS will hit $74.17 billion and $28.28, reflecting a year-over-year increase of 4.1% and 6.6%, respectively.

Investors Are in For a Treat

Lockheed’s strong financial position also allows it to reward shareholders generously. As of Jun 30, 2024, the company paid out dividends worth $1.53 billion, which substantially boosted shareholders’ pockets. Moreover, it recently increased its quarterly dividend by $0.15 to $3.30 per share, payable on December 27, 2024.

With 22 consecutive years of dividend growth, Lockheed is on track to join the Dividend Aristocrats soon. The company offers a stable dividend with a four-year average yield of 2.66% and a payout ratio of 44.3%. Its current annual dividend of $13.20 yields 2.18% at the prevailing share price, while its dividend payouts have grown at a CAGR of 6.6% over the past three years.

Additionally, its board has authorized an extra $3 billion for share repurchases, bringing the total authorization for buybacks to around $10 billion. This substantial buyback capacity reflects the company’s confidence in generating cash as it continues to turn its multi-year backlog into revenue.

Bottom Line

As geopolitical tensions rise, the defense industry continues to benefit from increased military spending worldwide, making companies like Lockheed Martin attractive investments. Moreover, the war in the Middle East and the broader global threat level have spurred greater urgency in defense budgets, particularly in the U.S., which could boost international sales for Lockheed.

Historically, defense stocks tend to outperform during periods of monetary easing, and with the recent Fed rate cuts, there’s potential for further positive momentum. RBC Capital Markets emphasizes that LMT could see positive sentiment continuing into 2025, driven by projected mid-single-digit growth in free cash flow and solid quarterly results.

Investors should keep an eye on Lockheed’s upcoming quarterly report, which will focus on F-35 fighter jet deliveries and initial guidance for 2025. With RBC raising its price target for LMT’s stock to $675, it’s clear that sentiment is improving due to better-than-expected sales growth.

While the outlook remains promising, it’s essential to consider both the rewards and potential risks. Market conditions and geopolitical shifts can affect defense stocks, and one should stay informed. However, given LMT’s strong financials, stable dividend payouts, and buyback program, we believe it could be a solid addition for investors seeking to gain defense sector exposure.

China's Naval Expansion: Why Defense Stocks Like NOC & LMT Are Poised for Growth

Posted on by The INO.com Team

In the first half of 2024, China's shipbuilding industry secured nearly 75% of new global orders, demonstrating the nation's expanding manufacturing power. Ship completions surged by 18.4% year-over-year to 25.02 million deadweight tons (dwt), which represents 55% of the global total during this period. Moreover, the industry's order backlogs increased by 38.6% to 171.55 million dwt. China’s dominance is no fluke, the country leads in 14 out of 18 major ship types for new orders.

But what’s driving this rapid ascent? It’s a mix of cutting-edge technology, surging global demand, and the unmatched efficiency of Chinese shipyards. By adopting advanced construction techniques and digital tools, China has managed to build ships faster and better, which has translated into booming profits. In fact, the industry’s profits for the first five months of 2024 came in at 16 billion yuan ($2.24 billion), up 187.5% year-over-year.

China's defense industry is rapidly advancing, producing increasingly larger and more capable warships at an impressive pace. For instance, the construction of the Yulan-class landing helicopter assault (LHA) ship, also known as the Type 076, at the Changxing Island Shipbuilding Base. This vessel is set to be a game-changer, poised to become the largest amphibious assault ship in the world.

Satellite images from July 4 show the vessel's flight deck spans over 13,500 square meters, which is nearly the size of three American football fields. That’s significantly larger than the U.S. America-class LHAs and Japan’s Izumo-class carriers and much bigger than its Chinese predecessor, the Type 075.

The Type 076 isn’t just about size; it’s about capability. With room for dozens of aircraft, drones, and amphibious landing craft, plus accommodations for over 1,000 marines, this ship is set to revolutionize the People’s Liberation Army’s (PLA) power projection. Its expansive flight deck and roomy internal hangar will offer enhanced capacity and flexibility, making it a formidable addition to China’s naval arsenal.

Images also reveal that the drydock where the new 076 class is being constructed opened only in October as part of a new port expansion. This rapid production is giving Beijing a significant edge, with the potential to outpace its rivals like the United States.

Since 2019, China has launched four Type 075 vessels, with two now combat-ready and four more on order. Although the U.S. Navy leads in total warship tonnage, China has surpassed the U.S. in the number of warships over 1,000 tons, and in combat logistics and support vessels.

The real worry for U.S. officials is China's shipbuilding capacity. According to U.S. Naval Intelligence, China’s shipbuilding capacity is now 632 times greater than the U.S., supported by a vast network of efficient shipyards.

In the past decade, China has launched 23 destroyers and eight guided-missile cruisers, while the U.S. has launched only 11 destroyers and none of the cruisers. This booming production capability, backed by a robust civilian shipbuilding industry, is raising serious concerns in Washington.

As nations respond to China’s expanding naval prowess, there is likely to be increased demand for advanced defense technologies and military solutions. This heightened demand could drive growth in defense stocks, reflecting the broader trends in global military strategy and procurement.

Therefore, investors and defense analysts are turning their attention to how companies like Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC) are positioned to capitalize on these developments. With that in mind, let’s dig deeper into the fundamental strength of the featured stocks in detail.

Lockheed Martin Corporation (LMT)

Security and aerospace company LMT focuses on research, design, development, manufacture, integration, and sustainment of advanced technology systems, products, and services. It operates through four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.

LMT’s net sales increased 8.6% year-over-year to $18.12 billion in the fiscal 2024 second quarter (ended June 30). Its consolidated operating profit grew marginally from the year-ago value to $2.04 billion, while its non-GAAP net earnings amounted to $1.64 billion in the same period. Also, the company’s EPS came in at $6.65, up 3.3% year-over-year.

While analysts predict a slight 4.6% drop in EPS for the year ending December 2024, its revenue is expected to grow by 5.5% year-over-year to $71.25 billion. For fiscal 2025, forecasts suggest revenue and EPS will hit $74.16 billion and $28.01, respectively.

Regarding rewarding shareholders, Lockheed Martin offers a stable dividend with a four-year average yield of 2.66% and a payout ratio of 44.3%. LMT’s current annual dividend of $12.60 translates to a 2.26% yield at the prevailing share price. Moreover, the company has increased its dividend payouts at a CAGR of 6.9% over the past three years.

In terms of price performance, the stock has gained nearly 30% over the past six months. As defense budgets rise globally, driven by geopolitical tensions, Lockheed Martin is well-positioned to benefit and deliver stable returns to your portfolio.

Northrop Grumman Corporation (NOC)

NOC operates as a global aerospace and defense technology company through four segments: Aeronautics Systems; Defense Systems; Mission Systems; and Space Systems. The company leads in satellite manufacturing and space technology, contributing to missions like NASA’s Artemis program.

Recently, the company declared a quarterly dividend of $2.06 per share on the common stock, in consistent with its 10% increase announced on May 14. This dividend is payable to its shareholders on September 18, 2024. With a forward annual dividend of $8.24 per share and a yield of 1.62%, Northrop not only rewards shareholders but also boasts 21 years of consecutive dividend growth.

Financially, NOC is on a solid footing. In the second quarter (ended June 30, 2024), its total sales increased 6.7% year-over-year to $10.22 billion, while its total operating income rose 12.7% from the year-ago value to $1.09 billion. Net earnings for the quarter came in at $940 million and $6.36 per share, reflecting an increase of 15.8% and 19.1% from the same period last year, respectively. Also, its free cash flow improved by 79.7% from the prior-year quarter to $1.10 billion.

Street expects NOC’s revenue to increase 5.2% year-over-year in the current year (ending December 2024) to $41.34 billion, while its EPS is expected to grow by 8.2% from the prior year to $25.20 in the same period. For the fiscal year 2025, its revenue and EPS are expected to reach $42.92 billion and $27.69, registering an increase of 3.8% and 9.8%, respectively.

Moreover, NOC’s shares have gained more than 16% over the past month and nearly 9% year-to-date, making it a compelling option in a rapidly evolving defense landscape.

3 Resilient Stocks to Safeguard Your Portfolio During Conflict

Posted on by The INO.com Team

The decades-old Israel-Palestine conflict over territory held sacred to both nations saw its deadliest escalation when Hamas initiated a widespread onslaught early morning on October 7. The calamitous events that unfolded that day led to the most significant loss of lives.

The Israeli cabinet officially declared war against Hamas the next day. This was succeeded by an order from the defense minister to the Israeli Defense Forces (IDF) to put Gaza under a complete siege. Subsequently, bombings in the Gaza Strip commenced, ensnaring the region in a harrowing humanitarian crisis. The Gaza Strip, home to 2.3 million Palestinians, is rapidly depleting its reserves of water, fuel, and other supplies due to the imposed Israeli aid blockade.

Rocket fire exchanges have become a daily occurrence between the two factions, with Israel urging over a million civilian Palestinians residing in northern Gaza to evacuate ahead of a potential ground incursion. Furthermore, the risk of conflict proliferation is high, as witnessed by escalating cross-border strikes in Lebanon and Syria.

Casualties keep mounting on both ends of the battlefield with little to no signs of peaceful negotiations, especially after the blast at a hospital in Gaza has further intensified the loss of innocent civilian lives.

Sectors Affected by the Conflict

Amid amplifying tensions in the Middle East, the world is simultaneously confronting the diplomatic turbulence spurred by the Russia-Ukraine conflict and global economic instability underpinned by stubborn inflation and escalating interest rates.

In situations of military conflict, defense corporations often witness a rise in earnings, an effect reflected in the upward trajectory of aerospace and defense stocks when geopolitical strife unfolds. Military contractors' shares soared in the Israel-Hamas conflict's immediate fallout, attracting institutional and individual investors. The iShares U.S. Aerospace & Defense ETF (ITA) has spiraled upward about 7% since the initial onslaughts on Israel earlier this month.

The potential for disruptions in oil supply increases during such times and usually results in abrupt surges in oil prices. Furthermore, geopolitical unrest persuades investors to avoid risky stock market investments and instead explore safe-haven or defensive assets as a precaution against heightened escalation or worldwide economic deceleration. These assets encompass U.S. Treasury bonds, gold, utilities, and energy.

UBS Wealth Management states, “In a scenario where the conflict expands and draws in other regional actors, we believe safe-haven assets, including U.S. Treasuries and gold, would gain further from investors' attempts to hedge against stronger escalation or a global economic slowdown driven in part by higher oil prices.”

Early reactions to the unrest saw oil prices rising by about 3%, a slight drop in stock futures, and a 1% climb in gold, while Treasury futures experienced a rise, consequentially diminishing yields.

Given this backdrop, we undertake an in-depth analysis of stocks Lockheed Martin Corporation (LMT), ChampionX Corporation (CHX), and Dundee Precious Metals Inc. (DPMLF) now.

Lockheed Martin Corporation (LMT)

Amid burgeoning global geopolitical tension, interest in military spending has not dwindled, fueled by the necessity to refresh existing conflict arsenals and prepare for future defense requirements. This situation benefits LMT, whose sizable order backlog has remained robust at $156 billion due to healthy domestic and international demands.

Bethesda, Maryland-based company LMT, with a market cap of over $111 billion, reported a better-than-anticipated third-quarter revenue and profit as geopolitical unease stimulated sustained demand for its military equipment. Consequently, the U.S. defense contractor shares rose about 2%.

The conflict in Ukraine has elicited a need for restocking weaponry such as shoulder-fired missiles, artillery, and other arms, providing a profitable avenue for U.S. defense-related firms to secure significant contracts from the Pentagon.

Among the sought-after hardware are LMT's offerings, particularly its guided multiple-launch rocket system and Javelin anti-tank missiles. These products, which LMT co-produces with defense firm Raytheon Technologies Corporation (RTX), have emerged as critical components supporting the Ukraine war efforts.

LMT executives highlighted the ongoing conflicts in Israel and Ukraine as potential catalysts for revenue growth in the foreseeable future.

Despite these circumstances, LMT's operations continue to reel from the effects of ongoing pandemic-linked labor and supply chain disruptions. These interruptions are particularly detrimental to the company's aeronautics division, renowned for manufacturing the advanced F-35 fighter jet. Sales at its aeronautics unit, the largest by size, saw a 5.2% year-over-year decline in the third quarter that ended September 2023.

However, despite these challenges, the defense giant reported a 1.8% year-over-year boost in net sales, achieving $16.88 billion. The Missiles and Fire Control unit, producing the High Mobility Artillery Rocket System, saw a 3.8% uptick from the year-ago quarter, reaching $2.94 billion. LMT's earnings per share stood at $6.73, exceeding estimates.

LMT remains a mature, low-growth entity boasting robust profitability. On the one hand, it has prospects for expanding margins through easing supply chains and executing legacy contracts. Concurrently, it carries uncertainties regarding the margin impact of a classified missile program discussed during the earnings call.

Analysts expect LMT’s revenue and EPS for the fiscal fourth quarter ending December 2023 to come at $17.94 billion and $7.25. It surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

ChampionX Corporation (CHX)

Israel harbors significant ambitions to exploit its abundant offshore natural gas resources and establish a significant role as an energy hub in the Eastern Mediterranean, potentially becoming a central supplier to Europe. However, the surprise assault by Islamist militant group Hamas is causing Israel to falter, posing a global energy market disruption risk, most notably affecting regional gas supplies.

Following Hamas’ weekend attack, European natural gas and global oil futures spiked by 14% and 4%, respectively, reflecting accumulating apprehension and the potential escalation of conflict. This created ripples of uncertainty within the energy market.

Heightening global oil demand, combined with OPEC+ and Russia’s prolonged production cuts, have surged oil and gas prices, fostering favorable conditions for exploration and subsequent production activities. Recent oilfield service giant Baker Hughes report, indicates that the total U.S. rig count augments by two units to 624 for the week ending October 20, 2023.

Moreover, escalating oil prices can be attributed to concerns surrounding potential interference from Iran in the Strait of Hormuz, one of the most significant oil chokepoints in the world. Natural gas prices have risen due to Israel ceasing operations at an offshore production facility within the missile range of Gaza and a mysterious breach in a Baltic pipeline, which Estonian officials believe resulted from external influence.

CHX, a global provider of chemistry solutions, engineered equipment, and technologies to oil and gas companies worldwide, with an impressive market cap of over $6 billion, recently disclosed its third fiscal quarter results that ended on September 30, 2023.

For the quarter, its revenue stood at $939.78 million. Its net income attributable to CHX increased 236.9% year-over-year to $77.71 million, while adjusted EBITDA was $189.54 million, up 14.1% from the prior-year quarter.

Through its regular cash dividend of $17 million and $68 million of CHX’s share repurchases, it returned 52% of cash from operating activities and 74% of its FCF in the third quarter to the shareholders.

CHX expects its production-centric business portfolio, cost-reduction strategies, and digital innovation will yield financial growth. Encouragingly, progression is likely to continue within the international and offshore businesses.

Looking to the fourth quarter, CHX projects revenue between $930 million and $970 million and adjusted EBITDA between $187 million and $197 million. CHX's cash generation remains robust, demonstrating its intent to convert at least 50% of its adjusted EBITDA into free cash flow for the full year and reaffirming its commitment to distribute a minimum of 60% of said cash flow to the shareholders for the year.

Analysts expect CHX’s EPS for the fiscal fourth quarter ending December 2023 to increase 16.1% year-over-year to $0.50, while its revenue for the quarter is expected to come at $979.99 million. It surpassed the consensus EPS estimates in three of the trailing four quarters.

Dundee Precious Metals Inc. (DPMLF)

During periods of instability, as exemplified by the recent outbreak of the Israel-Hamas conflict, gold prices traditionally rise, affirming its reputation as a safe-haven asset. But these geopolitical-instigated spikes tend to be fleeting. Adrian Day Asset Management President, said, "Geopolitical rallies in gold tend not to last long. In the longer term, monetary factors are more important for the gold price."

Amid the economic slowdown by the Fed’s continual interest rate hikes since 2022, gold stocks have emerged as particularly enticing in 2023. Instability in emerging market currencies coupled with an ascendant U.S. dollar has illuminated further investment opportunities, specifically within undervalued gold stocks – for individuals seeking to diversify their portfolios and capitalize on gold's long-term potential.

Canadian-based gold production company DPMLF, with operations in two Bulgarian mines and one Namibian mine, continues to intrigue equity investors despite the steady market prices of gold that have led to stagnant growth revenues.

The company’s impressive free cash flow generation, reaching $70.5 million and $135.5 million in the second quarter and the first half of 2023, respectively, expunges concerns regarding its growth trajectories. The substantial increase in FCF primarily resulted from higher earnings realized and strategic scheduling of cash outflows towards sustaining capital expenditures.

Share performance further corroborates DPMLF's appeal. DPMLF’s shares have outperformed many gold-mining entities, having appreciated over 30% year-to-date. Despite the rally, the overall valuation remains attractive. DPMLF’s forward EV/Sales of 0.96x is 31.2% lower than the industry average of 1.40x, while its forward EV/EBITDA of 2.03x is 72.3% lower than the industry average of 7.32x.

Although DPMLF’s Return on Equity (ROE) languishes slightly below the industry average, remarkable net income growth of 115.7% and 32.2% over the past three and five years, respectively, suggests robust growth. With a payout ratio of 36%, it signals the retention of approximately 64% of its profits for reinvestment and ensuing growth.

Indeed, the significant expansion in earnings testifies to the wisdom of the company's strategy, even when considering the less-than-stellar ROE. Further supporting these prospects, recent analyst forecasts predict DPMLF’s revenue to increase by 16.1% year-over-year to $149.30 million for the fiscal third quarter ending September 2023.

It's Time To Arm Your Portfolio

Posted on by Peter Tsimicalis

Today, in 2022, there are 27 ongoing armed interstate and civil conflicts occurring; while there is a moral and ethical perspective to be had while analyzing the state of military affairs in the world, there is also an economic one. Fun fact: It costs $100,000 per year to maintain each soldier within the United States Armed Forces, and this number will only continue to increase as the push from the supply side and pull from the demand side increase this input. As it is already a fact that inflation and the commodity price rally have pushed costs higher from the supply side, one can make a good bet on the fact that the need for armaments will also increase as the volume and magnitude of conflicts grow.

In this arena, a name stands out from the rest...

The Lockheed Martin Corporation (LMT) is one of the largest defense contractors in the world. Some of their recent notable projects include; the F-35 Lightning 2, the F-22 Raptor, and the Stalker VXE Unmanned Aerial System. Their subsidiaries include helicopter manufacturer Sikorsky, R&D agency Zeta Associates, & technical services provider Sytex inc. Lockheed Martin is one of the few contractors trusted by the US armed forces and NASA, as it, through the Skunk Works division, has been working on black projects for the US armed forces since World War Two. Some of their previous successes include the SR-71 Blackbird and the U-2 Spy Plane. Continue reading "It's Time To Arm Your Portfolio" →