LOCKHEED MARTIN CORPORATION (LMT): what the price requires
At today's price, LOCKHEED MARTIN CORPORATION (LMT) is priced for +0.3% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/LMT
Headline
| Field | Value |
|---|---|
| Ticker | LMT |
| Company | LOCKHEED MARTIN CORPORATION |
| Current price | $522.01/sh |
| Composition | Products 83% / Services 17% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 2.0% |
| Operating margin today | 10.3% |
| Margin compression implied | -8.3pp |
| Implied growth | 0.3% |
| Multiple paid | 19x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 7.3% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.7pp.
Reconcile: at the x-ray's 9.3% required return this reads ~14.4%/yr; the models below use their own rates.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -0.38σ |
| cohort percentile (of 225 peers) | 39 |
| implied end-window share | 0% |
Valuation X-Ray
The price is justified by relative-multiple and growth-DCF; asset-based/earnings-power land below the price.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 2.33x | 5 | expensive |
| Earnings | 2.34x | 5 | expensive |
| Relative | 1.23x | 5 | expensive |
| Growth | 1.10x | 4 | expensive |
Families that justify the price: Relative, Growth Families that call it expensive: Asset, Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.1%); the inversion above states its own rate.
Per-Model Detail (n=19)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $527.41 | 0.99x | yes | FCF base $5.7B, growth 5% (input: historical growth), terminal g 4.0%, WACC 8.1%, 5yr projection |
| DCF Exit Multiple | Growth | $507.52 | 1.03x | yes | Exit EV/EBITDA: 16.8x / 18.8x / 20.8x (bear / base = today's held flat / bull), 5yr |
| Relative Valuation | Relative | $422.83 | 1.23x | yes | P/E 22x (static sector reference · 2026-04), scenarios: 18.5x / 22.0x / 25.5x (bear / base = reference held flat / bull), EV/EBITDA 14x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | $443.03 | 1.18x | yes | Stage 1: 17% for 5yr, Stage 2: 3.5% perpetual |
| Simple Excess Return | Asset | $224.22 | 2.33x | yes | BV/sh $32.41, ROE (TTM) 64.0%, ke 9.3% |
| Two-Stage Excess Return | Asset | $832.05 | 0.63x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $393.35 | 1.33x | yes | Rev $75.1B, growth 5% (input: historical growth; tapered), Terminal P/S: 1.4x / 1.6x / 1.9x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $348.41 | 1.50x | yes | EPS $20.65, growth 17% (input: historical EPS growth), PEG=1.49 (Fair) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $284.54 | 1.83x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $8.12B × (1−16%) / WACC 8.1% → EPV (no growth) |
| Residual Income | Asset | $369.76 | 1.41x | yes | BV $32.41 + 5yr PV of (ROE (TTM) 64.0% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $122.71 | 4.25x | yes | √(22.5 × EPS $20.65 × BVPS $32.41) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $368.26 | 1.42x | yes | EBITDA $7.42B × sector EV/EBITDA 14.0x |
| FCF Yield | Earnings | $183.50 | 2.84x | yes | FCF $5662.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $168.21 | 3.10x | yes | SBC-adj FCF $5.33B (FCF $5.66B − SBC $0.33B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $666.31 | 0.78x | yes | EPS $20.65 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $26.48 | 19.71x | yes | BV $32.41 × (ROIC 6.6% / WACC 8.1%) |
| P/Sales Sector | Relative | $649.99 | 0.80x | yes | Revenue $75.11B × sector P/S 2.0x |
| PEG Fair Value | Relative | $522.61 | 1.00x | yes | EPS $20.65 × (PEG 1.5 × growth 16.9% (input: historical EPS growth)) → PE 25.3x |
| Earnings Yield | Earnings | $223.24 | 2.34x | yes | EPS $20.65 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $19.8b |
| Net debt / NOPAT (after-tax) | 3.16x |
| Net debt / operating income (pre-tax) | 2.65x |
| Interest coverage | 6.8x |
| Share count CAGR (buyback) | -3.7% |
| Burning cash | no |
Bullet Takeaways
- Lockheed Martin is the prime contractor on the F-35, the largest weapons program in history, and runs four segments spanning combat aircraft, missiles, helicopters, and space, with a backlog of $186.4 billion that gives multi-year revenue visibility.
- The defining risk is fixed-price development contracts: the 10-K disclosed reach-forward losses of $1.4 billion on a classified missiles program and $555 million on a classified aeronautics program in a single year, the kind of charge that can erase a quarter's profit.
- Watch cash flow and program execution: Q1 2026 free cash flow turned negative and F-35 deliveries fell to 32 from 47, so the markers are whether deliveries normalize and whether cash conversion recovers toward the full-year guidance.
Bull Case
Read Lockheed correctly and you are looking at a mature, cash-generative business whose value comes from durability rather than growth, and the price reflects exactly that. This is not a company the market expects to compound; inverting today's price points to roughly flat company-wide operating profit over the next several years, which is a modest, mature-defense assumption. The bull case is not that Lockheed accelerates. It is that a business with a $186.4 billion backlog, more than half of which converts to revenue within 24 months, and an entrenched position on the programs that define Western air power, is worth a steady multiple for the predictability of its earnings and the cash it returns.
The franchise is as close to irreplaceable as defense gets. Lockheed is the prime on the F-35, and the program is both enormous and sticky: once an air force commits to the aircraft, it commits to decades of sustainment, upgrades, and spare parts, a recurring stream that dwarfs the initial purchase. The 10-K shows the program advancing through its technology refresh, with the company delivering "106 Technology Refresh 3 (TR-3) configured aircraft" in a year as it works through "TR-3 and Block 4 capabilities". Even in a soft quarter for new deliveries, F-35 sustainment delivered higher sales and a $130 million favorable profit adjustment, which is the annuity underneath the headline aircraft count doing its work. Across the four segments, missiles and fire control, rotary and mission systems, and space round out a portfolio levered to exactly the categories defense budgets are prioritizing.
Capital return is the steady hand. Lockheed has been shrinking its share count at roughly 3.7% a year and pays a substantial dividend, so even with flat operating profit, per-share figures grind higher and shareholders are paid to wait. Interest coverage near 6.6 times means the $19.8 billion of net debt is comfortably serviced. The valuation support comes from the methods that credit a mature cash generator: the discounted-cash-flow methods land essentially on the price, and the peer-multiple lens, anchored on a sector P/E near 22 times, reads the stock as only modestly full. For a stock priced for almost no growth, the bull case is that the backlog, the F-35 annuity, and disciplined capital return make even that flat assumption a reasonable bet with real downside protection.
Bear Case
The variable with the most leverage on Lockheed is the one it controls least: the federal budget and the political priorities that shape it. Lockheed sells almost entirely to the U.S. government and its allies, and its revenue is therefore hostage to appropriations cycles, continuing resolutions, and procurement priorities that can shift with an administration. The F-35 itself, the franchise the bull leans on, has drawn recurring political scrutiny over cost and over whether future air power tilts toward cheaper, autonomous systems. A defense prime concentrated in a handful of large programs is exposed to a single program decision in a way a diversified industrial is not, and the price, while modest, still assumes the current program slate funds steadily for years.
The more immediate pressure is execution on fixed-price development work, and here the company's own filings are the bear's best evidence. The 10-K disclosed that in one year Lockheed recognized "losses of $555 million... on a classified program at our Aeronautics business segment" and "reach-forward losses of $1.4 billion... on a classified program at our MFC business segment". Reach-forward losses mean the company has to book the entire expected loss on a program the moment it recognizes the contract is underwater, and on fixed-price development contracts the overruns land on Lockheed, not the customer. The most recent quarter showed the same dynamic in milder form, with Aeronautics profit falling on unfavorable adjustments to the F-16 and C-130 programs. This is a structural feature of the modern defense business: the government has pushed risk onto contractors through fixed-price terms, and a company priced for steady profit has to absorb periodic charges that the steady-profit assumption does not contemplate.
The financial signal that should worry a holder is cash. In the most recent quarter, cash from operations fell to $220 million from $1.4 billion a year earlier, and free cash flow turned negative at minus $291 million versus a positive $955 million. A single quarter of working-capital swing is not a thesis, but for a company whose entire appeal is dependable cash return, a sharp drop in cash conversion is exactly the wrong signal, and it leaves less cushion against the program charges the business is prone to. Net debt of $19.8 billion is serviceable at 6.6 times coverage, but it is real leverage on a business with thin liquid assets, and the asset-value and earnings-power methods both read the stock as expensive, landing well below the price. The bear case is that a budget shift, a program charge, or a cash-conversion stumble, any of which the company's own disclosures describe as routine, pulls the modest growth the price assumes into actual decline.
Valuation
Lockheed is priced as a mature defense cash generator, and the inversion confirms it: at today's price the market pays roughly 18 times company-wide operating income, which implies essentially flat operating profit, about negative 0.3% a year, over the next five years. That is not a demanding assumption on its face. The bet is durability, that a backlog-rich, program-entrenched business sustains its current profitability, priced in the lower half of the defense-peer multiple range. The question is not whether Lockheed can grow fast, because the price does not require it to; the question is whether it can hold flat through budget cycles and program risk.
The method families split into the familiar two camps. The forward-growth lens lands on the price: a perpetual-growth DCF on roughly 5% growth and an exit-multiple model holding today's EV/EBITDA near 18 times both reach it. The peer-multiple lens, anchored on a sector P/E near 22 times, reads the stock as only modestly full. But the asset-value and earnings-power lenses say expensive. The pure earnings-power read, capitalizing normalized operating profit with no growth, lands at roughly half the price, and the book-value-plus-profitability methods land near $220 against a market price above $500. The reason is the thin equity base relative to the debt-funded balance sheet and a return on equity that does not generate a large premium over book in those frames. The honest read is that the static methods support a price well below today's, and the premium is the market crediting the durability of the franchise that those methods cannot fully frame.
The cohort comparison is unusually clean because Lockheed's true peers are a tight group. Across all four segments the peer set is the same three primes, RTX, General Dynamics, and Northrop Grumman, and Lockheed trades in the lower half of that group's multiple range, which is consistent with its flat-growth profile and its recent execution wobbles relative to peers with cleaner program books. Solvency is the constraint to weigh: net debt of $19.8 billion at 6.6 times coverage is manageable, but the negative free cash flow in the most recent quarter is the figure that matters most for a stock owned for its cash return, and it has to recover toward the full-year guidance of $6.5 billion to $6.8 billion for the thesis to hold. The decisive fact is the gap between a price that assumes steady profit and a business whose own filings document the periodic charges and cash swings that make "steady" the assumption most at risk.
Catalysts
The Q1 2026 print was a soft one and it sharpened the execution debate. Sales of $18.0 billion were essentially flat year over year, but consolidated operating profit fell 13% to $2.1 billion, and net earnings dropped to $6.44 per diluted share from $7.28 a year earlier as segment profitability softened. The most pointed detail was cash: operating cash flow fell to $220 million from $1.4 billion, and free cash flow turned negative at minus $291 million. F-35 deliveries fell to 32 from 47, though F-35 sustainment offset some of the weakness with higher sales and a favorable profit adjustment, while Aeronautics profit was pressured by unfavorable F-16 and C-130 adjustments.
Despite the weak quarter, management maintained its full-year 2026 outlook, guiding to sales of $77.5 billion to $80.0 billion and free cash flow of $6.5 billion to $6.8 billion, and pointed to a backlog of $186.4 billion with more than half converting within 24 months. The reaffirmed guidance is itself the catalyst tension: the full-year free-cash-flow target implies a sharp recovery from the negative first quarter, so whether cash conversion rebounds across the remaining quarters is the single most important marker for the year.
The watch items are program execution and the budget backdrop. Track the F-35 delivery cadence and whether the technology-refresh and Block 4 work proceeds without fresh charges, since the company's own history shows fixed-price development as the recurring source of negative surprises. Watch the next steps on classified and fixed-price programs for any further reach-forward losses, and watch the federal appropriations path and procurement priorities, since for a near-pure government contractor the budget is the variable with the most leverage on the thesis. For a stock owned for dependable cash return, the catalyst that matters most is the quarterly free-cash-flow recovery, because that is what the maintained guidance is staking its credibility on.
Peer Cohorts (Per Segment, With Filing Citations)
Aeronautics / Missiles and Fire Control +2 more (reported)
- RTX (RTX CORPORATION)
- (no filing in the citation store)
- GD (GENERAL DYNAMICS CORPORATION)
- (no filing in the citation store)
- NOC (NORTHROP GRUMMAN CORP /DE/)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Q1 FY2026 earnings release · FY2024 10-K