Hello once again guys welcome back to Stock radar I'm happy to have you guys Here we have a lot of new members Because I just opened up the group again So I want to welcome everyone who is new Make sure you spend some time and check Out the other stock analysis videos We've done as well as the other courses Just because there's so much material in Here now but you are in at a great time Here where you have a lot of stuff you Can check out and but we're going to get Right into our video today and talk About our analysis of this week's this Week's stock which is Lockheed Martin so As I said the company's Lockheed Martin They trade under the symbol LMT now this Company is 23 years old and that's Actually referring to the merger between Lockheed Martin or I'm sorry the Lockheed Corporation and then Martin Marietta but if you look back at the Lockheed corporation that dates back to 1926 but if you're referring to that Merger between the Lockheed Corporation And Martin Marietta that means this Company is 23 years old but it dates Back to much further back than that Based on the original companies Themselves uh this is an income and Growth investment they do have some Growth potential and they also are a Dividend stock they have a price to Earnings ratio of 22 and they have a 92
Billion dollar market capitalization now As I said they are a dividend stock they Pay a 2.5 dividend they have a 20-year Dividend history as far as how long They've been paying that dividend and a 15-year dividend growth streak so they Do have a very decent growth streak There and a pretty steady dividend at That 2.5 percent and of the defense Stocks out there they have the highest Dividend which is one of the reasons why I like Lockheed Martin stock but anyways What exactly is Lockheed Martin if we're Not familiar they're very similar to Boeing a stock we already covered here In stock radar but Lockheed Martin is a Security Aerospace Aerospace and defense Company and they operate through four Different segments and this is Way Beyond what I know you really would have To know a lot about defense and security To know what these things are but I did My best to try to summarize these but They operate under Aeronautics missiles And Fire Control MFC the third segment Is Rotary and mission systems and the Fourth is space so under Aeronautics They have a combat and air Mobility Aircraft unmanned aerial vehicles and Related Technologies under the missiles And Fire Control the MFC segment they Have air and missile defense systems Aorta ground Precision strike Weapons Systems Fire Control Systems and then
Other support and Engineering Services And then under the rotary mission Systems RMS they have Military and Commercial helicopters ship and Submarine Mission and combat systems and Then government cyber Security's support And then through the space segment they Have the satellites they have space Transportation systems and then they Have classified support and systems tied To National Security so there's a lot That goes on within Lockheed Martin that The general public cannot know about I Was actually talking to a friend of mine Who now lives in my building and he has A friend who works for Lockheed Martin And every time he asks her like how's Work going what are you doing she can't Tell them anything because of the Security clearance she has and so it's a Very secure company because they are Directly tied in with the government but Anyways let's go ahead now and talk About the pros and cons of this stock And as always we're going to start with The pros and first of all one of the Things I like about this stock is that It is that it's a low beta stock that's Something I'd like for beginners because You don't want to be investing in a Stock that has crazy volatility so we've Talked about this in the past but if you Haven't heard about beta before the beta Basically compares the volatility of
This stock to the overall market and so If the beta is equal to one this stock Is equally as volatile as the market if It's above one it's more volatile than The market and if it's less than one It's less volatile than the market and So with the beta of 0.71 I like this Stock as a good pick for beginners Because of that low volatility the other Pro I have for this stock is that Analysts have a one-year Target estimate Of 375.37 on this stock implying about 17 percent upside it also has a low p e Compared to the industry Piers so like We said Lockheed Martin has a price to Earnings ratio of 22 meanwhile Boeing Has a p e of 25.4 Northrop Grumman has a PE of 23.6 and Raytheon has a p e of 26.3 so of the peer companies involved In defense they have the lowest price to Earnings ratio now the other big plus I Have here is looking at that Peg the Price to earnings to growth ratio and if The peg is equal to one that means that The valuation is fair based on the Anticipated growth if it's above one That means that stock is overvalued Based on the anticipated growth and Below one means that that stock is Actually undervalued based on the growth Potential it has and with a peg of 0.41 That is very attractive and we compare That to Boeing with a PEG ratio of 1.27 So of those two companies of course
Boeing has been the darling of Wall Street it was the best performing stock On the Dow in 2017 but I think LMT Lockheed Martin has been underlooked and As such they are more undervalued than a Company like Boeing especially looking At that PE and the PEG ratio and then Also looking at the price to sales ratio We see Lockheed Martin comes in at a 1.78 meanwhile Boeing is at a 2.16 so Moving on from there other than the Fundamentals what do I like about out This stock I like defense stocks in General right now for one reason it's Due to the political favor uh due to the Fact that we have a republican house Right now we have Republicans in office You're going to see more money being Directed towards defense National Security and the companies that are Going to benefit largely from this are The companies that are involved with Defense and that is companies like Boeing and Lockheed Martin and those Other ones mentioned and so I think Defense stocks are a sure bet at least For the time being just based on the Fact that we have a Republican party in Office and so just to indicate that we Saw a 15 percent increase in the defense Budget for 2018 that was passed I Believe that was the largest increase in The last decade and then there is a Proposed seven percent increase for 2019
And so the more money that's going to be Directed towards defense spending a lot Of that's going to end up in the pockets Of companies like Lockheed Martin and Boeing and just to show you that 70 of The sales for Lockheed Martin in in 2017 Were to the United States government so Most of their money most of their sales Come from the US government so when You're seeing more money being directed Towards defense spending a lot of that's Going to go into the pockets of Lockheed Martin the other Pro for Lockheed Martin Is the missile defense Technologies they Have that is a top priority right now For the United States government and Also the allies of the United States When we hear about countries like North Korea or some of these unstable Countries and potentially launching Missiles and everybody gets fearful About that we know that the government In the United States and other Governments out there that are allies to Us are investing a lot of money in Missile defense and so that's again Another benefit here for Lockheed Martin As they do Supply those missile defense Technologies and Equipment the other Pro I have for Lockheed Martin is the fact That they are involved in this new Emerging space industry and I found an Interesting article that talked about a Report that Morgan Stanley put out and
They said the space industry is Currently valued at 350 billion dollars And they expect it to be valued around 1.1 trillion dollars by 2040 and so this Is a company that will benefit largely By an increase in in space spending as Far as their satellites and space Technologies and it's interesting to be Investing in a company involved in space Just because it's a completely new area That uh we will be getting into in the Future and you're investing in some new Exciting Technologies the other Pro I Have for them is that they've been very Generous with their share BuyBacks I'm Going to share some figures with you Over when we do the fundamental analysis In a little bit here but I always like Seeing companies that are generous with Returning the earnings to shareholders In the form of dividends and share BuyBacks and Lockheed Martin is doing Both of these the other Pro is the fact That like Boeing they operate on a Backlog and so they're not worried about Making aircrafts or helicopters or Defense systems and then throwing up Throwing them on Craigslist and trying To sell them they already have a Customer waiting for that and they Already have the orders they're not a Company that sits on inventory and so They operate on a backlog and that kind Of gives you an idea of how this company
Is going to do going forward and right Now they have a very strong backlog due To that increase in defense spending the Other Pro I have for them is that they Actually increase their sales outlook For 2018 in the most recent earnings Report by 350 million dollars so they're Actually increasing their Outlook as far As what they're expecting to do for 2018 A very positive sign for this company And that increase in sales should Convert to an increase in the bottom Line earnings as well so I expect to see Strong earnings numbers coming out for Lockheed Martin in 2018. now I do have a Couple of cons there's not really too Many cons for a company like this but I Have three primarily first of all is the Fact that they do have a significantly Underfunded pension it's a problem a lot Of these large companies have and so That's sucking up a lot of their cash Right now that was one complaint people Had for the most recent earnings report Was how much of their cash ended up Going towards their underfunded pension And so that might be a problem for this Company but there's a lot of companies Out there that have drastically Underfunded pensions so that is one Problem for a company like Lockheed Martin the other con is the fact that This is a cyclical industry due to the Fact that yes right now you know there's
More spending being directed towards Defense due to the political favor but As soon as you have a democrat in office You typically see a decrease in defense Spending and then as a result you're Going to see less money being directed Towards companies like Lockheed Martin And Boeing and when their biggest Customer is the United States government That can be a problem because when they Are not in favor based on the political Party you're going to see less you know Revenue and earnings for a company like That and so they do have all of their Eggs in one basket being so tied to the United States government but for the Time being we have a republican house And so things should be good for the Next couple of years and then the other Con I have is that the margins for Government contracts are not very Appealing they're not very good margins Just due to the fact that they have to Tell them everything they have to lay it Out and say okay here's what it's going To cost us here's what we're charging You and here's how much money we're Making on you they have to be Transparent about everything because They're working with the government and They have to be price competitive with The other defense contractors out there And so the margins on defense contracts Aren't great but they are a company that
Has a very stable Revenue stream coming From the government contracts and so I Do see this as a great dividend stock Here at a 2.5 percent and a suitable Pick for beginners with a strong Outlook As far as sales and spending go just Because of the political favor and then Let's go ahead and wrap up here by Talking about the barriers to entry a Company like Lockheed Martin has first Of all we pretty much have a defense Duopoly between Lockheed Martin and Boeing as far as the U.S government Defense spending and there's not a lot Of other companies out there that are Trying to enter that space just because It's a very complicated space to be in As far as serving a government customer There's a lot of regulation in place so You're not seeing a lot of companies out There saying hey I'm going to start Making defense helicopters and fighter Jets and trying to sell these to the United States government so that pretty Much ties in one into there first of all It's a duopoly there between Boeing and Lockheed Martin and second of all Because of the fact that they are Involved in government contracts it's Not a business a lot of people are Looking to get into and then third and Finally it's the research and Development as well as the technology And patents a company like Lockheed
Martin has you're just not going to be Seeing companies out there trying to get Into that business it's very expensive To be producing this equipment and they Have very strong ties and trusts with The US government so you're not going to See a lot of companies out there edging Into this space but anyways guys that's Going to wrap up the beginning of this Analysis now we're going to jump over And look at the fundamentals of Lockheed Martin okay so now we're going to look At the fundamentals here of Lockheed Martin stock and as always we're going To start by looking at the assets on the Balance sheet so first of all total Asset have declined from 2015 to 2017 While current assets have grown steadily And total assets declined 5.6 percent From 2015 to 2017 so we're not seeing Any growth in the Assets in fact we're Actually seeing a decline in the assets Over the last three years however the Current assets are growing cash and cash Equivalents Grew From 2015 to 2017 and Current and total assets were consistent Over the last four quarters so cash and Cash equivalents declined over the last Three quarters despite the fact that it Grew from 2015 to 2017 and again I think A lot of that was due to them funding Their pension and then cash and cash Equivalents are growing slightly while Total assets are declining slightly so
What we're seeing here is kind of Interesting we're seeing slow growth of Cash and cash equivalents and current Assets and we're seeing a slow decline Of total assets so nothing really Jumping out here making this uh you know A very attractive balance sheet but it's Not really like we're seeing any kind of Serious decline here in the assets They're just relatively steady but with A slow decline now total liabilities Have increased every year since 2014 and Total liabilities increased 1.9 percent From 2016 to 2017 so we're seeing slow Growth in total liabilities as well now Current assets have adequate coverage of Current liabilities at 1.27 to 1 in Quarter one of 2018 and I usually like To see a number of 1.5 to 1 or above so The coverage is adequate but it's Certainly not Stellar coverage of their Current liabilities long-term debt has Declined from 2015 to 2017 that is a Plus and total assets are close to equal To Total liabilities of 0.99 to 1 in Quarter one of 2018 so this is a company With a fair amount of debt and so the Best way to interpret that is to say That for every one dollar in assets that Lockheed Martin has it has one dollar in Liabilities as well and that's a little Bit more debt than I I'm comfortable With as an investor but they're Certainly not drowning in debt but they
Do have a fair amount of debt so total Assets have declined slightly while Total liabilities have grown slightly Again nothing really positive jumping Out about the assets and the liabilities Here in fact that would actually be a Negative for me seeing the growth even Though it's slow of the total Liabilities and the slight decline of Total assets now this right here is why We have seen the share price moving over The last couple of years gross profit Has increased every year since 2015 at An average rate of 11.2 percent per year And gross profit increased 9.6 percent From 2016 to 2017. now total revenue Increased just eight percent from 2016 To 2017 meaning that gross profit growth Outpaced the growth of total revenue Indicating better profitability so that Is a plus right there in my book when You're seeing the growth of gross profit Outpacing total revenue that means they Are operating the business more Efficiently and cost cost of Revenue is Under control now net cash flow from Operations has increased every year Since 2014 at an average rate of 19.5 Percent per year very impressive number There and we're seeing improving Profitability and cash flow on growing Revenue and so this is really where Lockheed Martin is shining and why a lot Of people are bullish on this stock in
Particular so now we'll go ahead and Take a look at the performance of the Stock over the last year and over the Last five years so Lockheed Martin stock Is up 18.3 percent over the last year Compared to a 12.9 percent return from The S P 500 so they have outperformed The overall Market but in that same time Frame Boeing was up 87.4 percent and if You haven't watched my analysis on Boeing stock make sure you check that Out and it really goes into detail as to Why we saw such a rapid appreciation With Boeing stock and over the last five Years Lockheed Martin stock is up 201 Compared to a 62.7 return from the S P 500 and a 246 return from Boeing so so As you can see here over the last five Years Lockheed Martin is at a similar Pace to Boeing but over the last year Boeing has been the clear winner now the Other thing like I said earlier on Lockheed Martin is a low beta stock at 0.71 making it a suitable pick for Beginners and that dividend is very Attractive and Lockheed Martin has the Highest defense dividend at 2.5 percent As you can see ba is two percent NOC 1.3 Percent and rtn 1.7 percent so they do Have the most attractive dividend in the Defense industry and so while the Political party is in favor of Defense Boeing is leading the pack right now but I think Lockheed Martin is largely being
Underlooked and I see Lockheed Martin as A stock that is a great dividend pick But the growth potential with this stock Is unclear especially due to the fact That this is a cyclical industry so now We're going to go ahead and take a look At some of these snapshots here from the First quarter 2018 earnings report and As you can see there that's where they Mentioned they returned 890 million Dollars of cash to stockholders in the Form of dividends and all so the Repurchasing of 0.9 million shares for 300 million so they are very generous With the share BuyBacks and with the Dividends they're returning to Shareholders on the right there we have The first quarter sales and segment Operating profit comparing it to these Previous quarter and as you can see they Did 11.2 billion in quarter one of 2017 And 11.6 billion in the most recent Quarter in the segment operating profit Had a significant jump as well from 1.1 Billion to 1.3 billion so this was a Very strong quarter for Lockheed Martin We saw a significant bump here in the First quarter earnings per share in Quarter one of 2017 it came in at 269 And in the most recent quarter it came In at 402 so strong earnings and a good Bump there in the earnings per share and Then we have the 2018 Outlook update Those were the adjusted figures based on
What they're expecting to do this year It's always good to be seeing a company Increasing their Outlook or their Guidance and that's what we're seeing Take place here with Lockheed Martin and Then here we we have their sales Outlook And then operating profit Outlook and This is the increase that they added Here so their sales Outlook increased by 350 million for 2018 and the segment Operating profit Outlook increased by 115 million for 2018 also a very strong Sign here for Lockheed Martin increasing Sales and increasing operating profit And then finally they provided a summary Here as well they said they've had Strong financial and operational Performance indicated by those slides we Just covered there the backlog is Providing continued strength and they've Increased 2018 outlook for sales Operating profit and earnings per share All positive signs for investors but Anyways guys that's going to wrap up our Analysis here of Lockheed Martin stock I Hope you enjoyed it and I will see you In the next video
