We came across a bullish thesis on Lockheed Martin Corporation (LMT) on Substack by Steve Wagner. In this article, we will summarize the bulls’ thesis on LMT. Lockheed Martin Corporation (LMT)’s share was trading at $459.65 as of Jan 30th. LMT’s trailing and forward P/E were 20.60 and 16.86 respectively according to Yahoo Finance.
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Lockheed Martin (LMT) faced a sharp stock drop after reporting disappointing fourth-quarter earnings, with EPS plunging to $2.22 from $7.58 a year ago, well below the $6.62 consensus estimate. The primary cause was a massive $1.7B loss tied to classified programs within the Aeronautics and Missiles and Fire Control (MFC) segments. Adding to investor concerns, LMT revised its 2025 profit outlook downward, now projecting an EPS of $27.00–$27.30, missing the expected $27.92. A delay in rolling out a technology upgrade for the F-35 fighter jet was a significant factor in the weaker forecast.
Despite these setbacks, LMT reported a record-high $176B backlog, underscoring strong demand for its defense technologies. The quarterly results showed net sales of $18.6B, slightly down from $18.9B in Q4 2023, in part due to a shorter fiscal quarter. Full-year 2024 net sales rose 5% to $71B, highlighting the company’s resilience in securing contracts despite headwinds. However, EPS for the full year declined to $22.31 from $27.55, reflecting the $2.0B in classified program losses. Free cash flow also declined to $5.3B from $6.2B, impacted by a $990M pension contribution.
The biggest pain points came from the Aeronautics and MFC segments. Aeronautics saw $410M in Q4 losses and $555M for the year, tied to a complex fixed-price contract with mounting engineering and integration costs. The MFC segment was hit even harder, recording a $1.3B loss in Q4 and $1.4B for the year, as cost overruns ballooned on a classified contract with a cost-reimbursable base and fixed-price options. Management’s assumption that all contract options would be exercised led to higher projected costs, putting pressure on margins.
However, there are reasons for optimism. LMT’s sales growth, especially in the Aeronautics segment, was driven by the F-35 production ramp-up, while the MFC segment saw strong demand for tactical missile systems. The Rotary and Mission Systems (RMS) division grew sales by 6%, thanks to radar and laser system demand, and the Space segment maintained steady profitability despite lower classified program volumes. Importantly, the company returned $6.8B to shareholders via dividends and buybacks, reinforcing investor confidence.
Looking ahead, LMT is targeting $73.8B–$74.8B in sales for 2025, with an improved EPS forecast despite near-term cost challenges. CEO Jim Taiclet remains focused on AI, 6th-gen aircraft, and cyber-hardened systems, which could drive future growth. While classified program losses were a major setback, they are not a long-term structural issue but rather a costly lesson in project oversight. If LMT can tighten cost controls and execute on its advanced defense initiatives, the long-term outlook remains strong. The stock’s pullback presents an opportunity for investors willing to look beyond short-term turbulence.
Lockheed Martin Corporation (LMT) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 58 hedge fund portfolios held LMT at the end of the third quarter which was 56 in the previous quarter. While we acknowledge the risk and potential of LMT as an 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 more promising than 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.