Slowing revenue growth and reduced margins may have spoiled the party for Lockheed Martin (LMT) shareholders, but the stock has outperformed the S&P 500 this year. Trump’s election victory has spurred hopes of increased spending on defense though, sending the stock higher.
Lockheed Martin is a leader in the aerospace and defense sectors focusing on the research, design, development, and manufacture of advanced technology systems, mostly for military purposes. Their technologies also encompass space systems and cybersecurity solutions.
The company was founded in 1995 through the merger of Lockheed Corporation and Martin Marietta and is headquartered in Bethesda, Maryland.
LMT’s leading products include military aircraft like the fighter jets F-22 Raptor and F-35 Lightning II. It makes unmanned air vehicles that have recently become a common element in global conflicts. Its missile systems such as the THAAD and the Javelin anti-tank missiles offer optimal solutions to countries looking to strengthen their defense systems.
When it comes to space, the company makes the Orion spacecraft for NASA’s Artemis program. It also offers simulation and training solutions and cybersecurity services.
The company is one of the largest defense contractors globally, with 70% of total revenue coming from defense contracts. Even though most of these defense contracts come from within the US, the company plays a vital role in providing defense infrastructure to American allies. Its commercial aerospace division contributes about 20%, and other services add around 10%.
Lockheed Martin’s top clients are the U.S. Department of Defense, NASA, U.S. Department of Energy, U.S. Coast Guard, U.S. Army, U.S. Navy, U.S. Air Force, and international defense agencies and governments.
The election of Donald Trump as the 47th US President has raised the prospects of increased defense spending. Together with increasing geo-political tensions in the world and Lockheed’s position as a partner of choice for many US allies, the company’s prospects are getting brighter under a Trump administration, driving our bullish thesis.
Take for instance the Taiwan developments. The country, which desperately needs to strengthen its defense capabilities to protect itself from Chinese aggression, plans to buy as many as 60 F-35 fighter jets from LMT. The Aegis naval weapon system, a total weapon system from detection to kill, is also rumored to be on the country’s shopping list. These purchases will likely drive positive sentiment as it will ensure LMT is always the company of choice for Taiwan when it comes to its defensive systems.
An increased defense spending in the US will also spur a new wave of spending in Europe, which also finds itself embroiled in a conflict. LMT’s 26% revenue comes from non-US customers(10% from Europe) and this part is likely to pick up pace in the coming years. It will not only further diversify the company’s revenue streams but also further strengthen its already solid finances.
Lockheed Martin is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 56 hedge fund portfolios held LMT at the end of the second quarter which was 47 in the previous quarter. While we acknowledge the potential of LMT as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as LMT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
