RBC Capital Upgrades Lockheed Martin:
Lockheed Martin (LMT) was raised by RBC Capital Markets from Underperform to Outperform on March 5th, with a price target of $98 a share. RBC mentioned the firm's solid dividend as the cause for the upgrade. Lockheed does have very solid dividend numbers with a five year dividend expansion rate of 22% and a low payout ratio of 41.17%. The firm has increased its dividend for nine successive years.
RBC analyst stated that they consider the firm’s original situation is similar to its defense players in terms of US Department of Defense budget pressures, margin challenges, pensions, etc., and yet it exchanges at a 15% premium. The one major distinction is the dividend and Lockheed’s competitors continue to stand firm against matching its dividend payout strategy. If that situation remains constant, then they see Lockheed both maintaining its premium and potentially moving ahead from here as it still offers an enhanced dividend yield at a discount valuation against conventional income paying sectors.
Leading Financial Indicators:
Lockheed has a massive market capitalization of almost $29 billion with average trading volume surpassing $2.5 million. The price to earnings ratio is attractive at 11.41 with earnings per share nearing $8. The firm has enjoyed a superior dividend history in recent times, which has stimulated encouraging investor sentiment. It presently has a dividend payout ratio of 1 and a yield of almost 5%. In relation to my analysis of key financial ratios and historical data, Lockheed will demonstrate considerable growth of 3% in 2012 in any case.
Fourth Quarter Performance:
Lockheed Martin went beyond analyst forecasts on its fourth quarter 2011 performance by $0.20 earnings of $2.14 against $1.94, and it has surpassed EPS forecasts for the previous six quarters. The firm trades close to $89.00 per share. After Japan rolled out a caution that it may terminate its contract with Lockheed, Forbes adjusted its price forecast for the company, driving it lower to $86 per share, meaning it is overvalued by about 3% by its calculations.
But there are analysts that articulate Lockheed could touch $102 per share in the coming year. If they are right, that would be a gain of over 15%. Additionally to the upside, Lockheed as well pays a $4 dividend (4.50% yield), so investors purchasing now could obtain a return as high as 20% over the coming year.
Looking ahead, what is expected?
Lockheed has a forward price to earnings ratio of just 10.46 and has strong earnings forecasts. In proportion to Yahoo Finance, Lockheed's earnings are likely to increase by 8.20% annually on average over the coming five years, against forecasts of 12.85% for its industry. Most of this expansion is likely to come in 2014 and afterwards. Lockheed's earnings are likely to increase by just 0.40% present year and 7.40% in the coming years.
Yet at these low rates, Lockheed has an intrinsic worth of $88.37 per share, which is only slightly less than its recent trade price of $89.00.
A Sneak Peek on Competition:
In contrast, rival Boeing (BA) changed hands around $73, has an intrinsic value of $69, and gives a $1.76 dividend with a dividend yield of 2.39%. On one side, if Lockheed's agreement with Japan remains unsuccessful, Boeing could hike the pieces. Its F/A-18 was one of the fighter planes Japan thought about before finalizing on Lockheed’s F-35. But, devoid of that, Boeing's guidance is just fair. The firm has a mean one-year target price of $84.73. Its sales are anticipated to boost by 15% in 2012, but that expansion will be driven almost completely by its commercial airlines division. Boeing's aerospace and defense business revenues are likely to drop by 4.5% this year in accordance with Standard & Poor's.
Competitor Northrop Grumman (NOC), trading at $60 per share with a $2 dividend with a 3.30% dividend yield and an intrinsic worth of $58.33. It has a one-year target forecast of just $60.27, implying that analysts are not normally hopeful. Standard & Poor's forecasts its sales will decline 5% in 2012, after declining 6% in 2011. The drop is sales is a result of increasing pressures from government and defense budgets which are currently facing mass reductions.
Raytheon (RTN) trading around $51 per share, pays a $1.72 in dividend with 3.31% dividend yield and has an intrinsic worth of $42.32, telling it is overvalued. The forecast for this firm isn't any better. It has a mean one-year target price of just $51.77. Raytheon is much lesser than these other firms and I doubt it will be competent to weather the storm as easily. Its present debt to equity ratio is down at 0.56 but so is its quick ratio, at 0.87.
Lockheed Is Attractive Enough to Add in a Portfolio:
Studying these firms, Lockheed's intrinsic worth is on par, its dividend is greater and it is the single company of these four with earnings that are anticipated to expand this year. Given its intrinsic worth and its high dividend, I think that Lockheed is a great choice for investors with a time span of three years or further.
Lockheed is as well positioned, given the existing political environment. There are the concerns between Iran and Israel to mull over, the latter of which is one of Lockheed's key export partners. Israel placed an order of 20 F-35s from Lockheed in October 2010 in a $2.75 billion agreement. They are anticipated to be delivered between 2015 and 2016. Domestic spending requires to be considered in addition. Lockheed has a variety of contracts in place with the US government.
About the author:I am primarily an investor interested in creating passive income streams through dividends. I focus on finding and analyzing dividend paying stocks, MLPs and REITs that are a good fit for income investors.
I practice Judaism and my faith is very important to me. I visit family in Israel once a year, but I am educated and work in the United States where I hold an MBA and a bachelor’s in English. I am a patient man, enjoy wine but am not a connoisseur, and I listen more than I speak.