Northrop Grumman Corporation (NOC): Lockheed Martin Corporation (LMT) Stock Is in Dire Need of a Buyback

And now check out how the three firms compare when valued on the standard metric of share price-to-earnings. (Hint: Lockheed Martin stock doesn’t fare well.)

… be very afraid
So just to make this picture crystal clear, let’s run down the facts so far, just shifting them around a bit for emphasis:

Lockheed Martin stock currently offers investors the worst free cash flow yield of any of the three big military aerospace firms.

If Lockheed Martin stock reflects this lack of quality by costing a bit less than Boeing stock, it’s still not as cheap as Northrop Grumman.

And now, as a direct result of Northrop Grumman’s decision to institute a big share-repurchase program, Lockheed Martin stock is the only one of the three big military aerospace firms whose earnings look set to decline over the next three years.

Not to put too fine a point on it, but Lockheed Martin Corporation (NYSE:LMT) is running out of “pluses” to recommend its stock to investors. It’s not the cheapest defense stock out there. It is the worst cash producer. And if its earnings are projected to grow modestly in the long term, as the F-35 program scales up, then in the short term at least, the stock still compares very unfavorably with its peers.

One thing Lockheed Martin Corporation (NYSE:LMT) could do to counteract this impression, though, would be to deploy its $3 billion in cash on hand, and $2.3 billion in annual free cash flow to buy back a bit of its stock. A one-year-long aggressive buyback program targeted at reducing share count by 15% could level off the near-term decline in earnings, help give investors a reason to be patient, and get them to stick around long enough to see long-term growth appear.

The article Lockheed Martin Stock Is in Dire Need of a Buyback originally appeared on Fool.com and is written by Rich Smith.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin and Northrop Grumman.

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