Lockheed Martin Corp. (LMT) is a leading company in one of the U.S. economy’s core competency industries: Aerospace & Defense, explains John Eade, an analyst with Argus Research, a leading independent Wall Street research firm.

The company has consistently delivered positive surprises to the Street in recent years, regardless of whether defense spending is rising or falling, or the White House is occupied by a Republican or a Democrat.

We have a favorable view of the company’s focus on international revenue diversification (now more than 25% of sales), and expect ongoing geopolitical tension to benefit sales and earnings going forward. New management has signaled to Wall Street that near-term earnings growth will slow, though the long-term outlook remains upbeat.

Investors focused only on the short term have thus exited the stock, creating a value opportunity. The projected 2023 P/E of 15 is at the low end of the historical range. The current yield of about 3.0% is well above the broad market average. Our target price of $500 implies a P/E of 18-times our 2023 estimate and a yield of about 2.4%.

LMT shares have outperformed the market over the past quarter, gaining 6% compared to a decline of 4% for the S&P 500. Over the past year, the shares have also outperformed, rising 15% compared to an 18% decrease for the index.

Based on recent sales and margin trends, we are resetting our adjusted 2022 EPS estimate to $21.70. Our estimate is slightly above management’s guidance. We look for growth to accelerate in 2023, and are maintaining our EPS forecast of $28.50. Our long-term EPS growth rate forecast is 7%, reduced from 10%.

Long-term opportunities include the company’s hypersonic portfolio, classified activities, programs of record including the CH-53K heavy lift helicopter, F-35 sustainment activity, increased PAC-3 production, and enhancements to the fleet ballistic missile.

During this period of limited growth opportunities, the company expects to aggressively repurchase shares. To that end, in October 2022, the board authorized the purchase of up to an additional $14.0 billion of LMT stock. The company plans to execute a $4.0 billion accelerated share repurchase in 4Q22, bringing total repurchases for the year to approximately $8.0 billion.

LMT shares are trading at 15-times projected 2023 earnings. On price/sales, the shares are trading above the midpoint of the five-year range of 1.2-1.9. The dividend yield of about 3.0% is also above the five-year average and the market average, signaling value. We continue to see value in the shares and are maintaining our target price of $500.

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