Krause Fund Research Spring 2024 Industrials

April 14, 2024 Aerospace & Defense

Lockheed Martin Corporation

Stock Rating: Buy (NYSE: LMT)
Target Price: $475 - $515 Current Price: $450.40

Analysts
Connor Ward | connor-ward@[Link] Carson Jansen | carson-jansen@[Link]

Investment Thesis Valuation Summary

We recommend a BUY rating on Lockheed Martin Corporation with potential Discounted Cash Flow: $480.29
upside of 14%. We believe it is poised for growth due to an uptick in U.S. Defense Dividend Discount: $500.25
spending. Relative (P/E EPS25): $532.90
Thesis Drivers
Company Overview
Geopolitical tension:
Geopolitical tension fuels Lockheed Martin's revenue growth due to increased
Lockheed Martin is a global security
demand for defense and security solutions. As nations perceive threats or engage and aerospace company. They
in conflicts, they bolster their military capabilities. Current conflicts between primarily focus on defense, space,
Russia and Ukraine, and Israel and Hamas are the main geopolitical drivers of our intelligence, homeland security and
thesis. information technology. They serve
both U.S. and international customers,
Pro-shareholder management:
with the U.S. Government as their
A pro-shareholder management team at Lockheed Martin prioritizes maximizing
principal customer. Lockheed Martin
returns to shareholders through stock repurchases and dividends. Since CEO Jim operates in four business segments:
Taiclet took position in 2020 Lockheed has begun aggressively repurchasing Aeronautics, Missiles and Fire Control
shares, seeing a 272% increase in 2021 followed by a 93% increase in 2022. In (MFC), Rotary and Mission Systems
this time, Lockheed has seen steady dividend growth around 7.5% per year. (RMS), and Space.
Thesis Risks
Statistical Highlights
Ukraine joining NATO:
If Ukraine joins NATO, the United States will potentially alter its spending Stock Price
initiatives towards deploying U.S. troops into Ukraine, potentially reducing 52-Week Range: $393.77 - $508.10
spending on defense contractors like Lockheed Martin. YTD Performance: (1.25%)
Unsuccessful US defense bids: Financials
Lockheed Martin relies heavily on winning U.S. government contract bids for its Market Cap: $108.32B
revenue, as the US is its largest customer and makes up 73% of its revenue. If Shares Outstanding: 240M
Lockheed consistently loses bids, it could lead to reduced revenue streams. 2023 Revenue: $67,571M
2023 Net Income: $6,920M
F-35 Program:
2023 EPS: $27.65
The F-35 program represents 26% of 2023 net sales. Decisions by the U.S.
2023 Dividend Yield: 2.80%
government or international customers to cut spending on this program will have
2023 P/E: 16.3
a major impact on Lockheed’s business.
WACC: 6.30%
Beta: 0.524
2023 Margins & Ratios
Gross Margin: 12.55%
Profit Margin: 10.24%
ROA: 13.19%
ROE: 74.68%
Quick Ratio: 1.03
Debt-to-Equity: 2.72
2023 EV/Revenue: 1.87
 support and integration services; manned and
Company Analysis
unmanned ground vehicles; and energy management
solutions. Major programs include Patriot Advanced
Revenue Segments
Capability-3, Terminal High Altitude Area Defense, the
Lockheed Martin generates its revenue from four main Multiple Launch Rocket System, and the Precision
units. These include Aeronautics, Rotary & Missions Strike Missile.2
Systems, Space, Missiles & Fire Control. Across all
Rotary and Mission Systems
business segments Lockheed Martin generated
$67.57 billion in revenue during 2023. Geographically, In 2023, Rotary and Mission Systems accounted for
73.9% of this revenue was generated from the United 24% of total revenue. This is a 0.6% growth from 2022.4
States, 1.6% from China (will be reduced to zero RMS designs, manufactures, services and supports
moving forward due to sales by the U.S. to Taiwan), various military and commercial helicopters, surface
and 1.5% from both Japan and Germany.4 ships, sea and land-based missile defense systems,
radar systems, laser systems, sea and air-based
mission and combat systems, command and control
mission solutions, cyber solutions, and simulation
and training solutions. Major programs include the
BLACK HAWK, Seahawk, and CH-35K helicopter
programs.2

Space

In 2023, Space accounted for 18.7% of total revenue.

This is a 9.3% growth from 2022, and the largest year
over year growth across all business segments.4
Space is engaged in the research and design,
Source: 2
development, engineering and production of
Aeronautics satellites, space transportation systems, and
strategic, advanced strike, and defensive systems.
In 2023, Aeronautics accounted for 40.7% of total Space provides network-enabled situational
revenue. This is a 1.8% growth from 2022.4 Aeronautics awareness and integrates complex space and ground
specializes in military aircraft, including combat and global systems to help customers gather, analyze and
air mobility aircraft, unmanned air vehicles and securely distribute critical intelligence data. Major
related technologies. Major programs include the F35 programs include the Next Generation Overhead
Lightning II, C-130 Hercules, F-16 Fighting Falcon, and Persistent Infrared System, the Trident II D5 Fleet
the F-22 Raptor. The F-35 is Lockheed Martin’s most Ballistic Missile, and the Orion Multi-Purpose Crew
successful program, generating 64% of Aeronautics’ Vehicle.2
revenue, and 26% of total revenue. Aeronautics also
focuses on Advanced Development Programs that Cost Analysis
focus on future systems, including unmanned and
Lockheed Martin breaks cost of sales down by
manned aerial systems with next generation
products and services and includes severance and
capabilities.2
other unallocated items 2. Product costs are their
Missiles and Fire Control most relevant expense, and most costly as that is the
main focus of business. Expenses have been growing
In 2023, Missiles and Fire Control accounted for due to material price inflation. Research and
16.7% of total revenue. This is a -0.6% growth from Development expenses are key to Lockheed Martin’s
2022.4 MFC provides air and missile defense systems; future growth. In 2023, they spent $1.5 billion on self-
tactical missiles and air-to-ground precision strike funded R&D expenses. Other sources of R&D funding
weapon systems; logistics; fire control systems; come from the customer that Lockheed is contracted
mission operations support, readiness, engineering with. Service costs increased by 8% in 2023 due to

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higher volume of F-35 sustainment contracts.2 In our In 2023 Lockheed had $168M in their current
forecast period, we expect costs to grow in line with maturities of long-term debt. Based on Lockheed’s
revenue. cash position of $1,442M, they should not be troubled
by their current and future obligations.4 Lockheed
Contract Type
does see quite different maturities in the next 10 years
The following are definitions of types of contracts that though. While these obligations do increase in the
Lockheed Martin enters.2 coming years, we believe Lockheed will not struggle to
handle these maturities based on our forecasted cash
Fixed-Price: balances. These obligations are shown below.
Lockheed Martin agrees to perform specified work for LMT LT Debt Schedule
a pre-determined price.2 Year 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Dollars (M) $0 $500 $1,168 $750 $500 $183 $400 $0 $800 $1,000
Cost-Reimbursable: Source: 2
Lockheed Martin is provided with payment of Payout Policy & Pro-Shareholder Management
allowable costs by the other party, plus a fee up to a
ceiling based on the amount that has been funded. Lockheed Martin engages in both dividends paid to
Cost-Reimbursable includes three types of contracts. shareholders and stock repurchases. Their dividends
Cost-Plus-Award-Fee, Cost-Plus-Incentive-Fee, and have seen healthy growth, increasing by 75-cents per
Cost-Plus-Fixed-Fee. Cost-Plus-Award-Fee provides share in 2023, or a 6.6% increase.2 Lockheed Martin
an award fee based on predetermined criteria of typically increases their dividends by a dollar amount
performance. Cost-Plus-Incentive-Fee includes a fee rather than a percentage growth rate. Between 2019 –
adjusted by a formula based on the relationship 2022, shareholders saw an 80-cent increase per year
between total allowable costs and total target costs. per share.2 In our model we estimated future
Cost-Plus-Fixed-Fee contracts provide a fee that is dividends based on a historical payout ratio of
negotiated at contract inception.2 earnings per share (EPS). Compared to its peers,
Lockheed sits atop by dividend yield as noted in the
Capital Structure below graphic.
Lockheed Martin has had a rather volatile debt-to- 2023 Dividend Yield Comparison
equity ratio for the past seven years. Ranging from Ticker LMT RTX GD NOC LHX TXT LDOS
1.18 – 10.11, its highest being in 2018.2 As of 2023, Dividend Yield 2.80% 2.36% 1.97% 1.64% 2.29% 0.09% 1.21%

Lockheed Martin had a ratio of 2.72. While Lockheed’s Source: 11

ratio is considered high, this ratio is not alarming in our
Lockheed Martin also actively repurchases stock,
opinion. We see Lockheed Martin moving towards
increasing EPS for its shareholders. Since Jim Taiclet
greater debt financing due to their stock repurchase
took over as CEO in 2020, Lockheed Martin has
program. This is not clearly seen in our modeling
repurchased $19B of common stock.2 They also note
assumptions, but this is due to a large, retained
in their Q4 investor relations presentation that they
earnings balance. Additionally, S&P has a stable credit
expect to repurchase another $4B in 2024.20 For our
rating for Lockheed at A-.11 Seeing its last upgrade in
model we have projected share repurchases as a
2019, where Lockheed’s debt-to-equity ratio was 4.32
percentage of operating cash flows (CFO) less capital
at the FY end and 10.11 in the prior year. Compared to
expenditures (CapEx). We found 2024s projected
peers, Lockheed sits inline or above in terms of long-
repurchase rate to be 48%. We took this rate and
term credit rating. We believe this is an example of
applied it to our forecasted free cash flows at a falling
Lockheed’s stability and provides confidence that
rate of 2% each year. This is how Lockheed’s
they will not default on its debt.
management calculates cash flows, and on average of
Debt Rating Comparison the last ten years they have returned 62% of free cash
Ticker LMT RTX BA GD TDG NOC LHX TXT LDOS flow (CFO – CapEx) to its shareholders.
LT Debt Rating A- BBB+ BBB- A- B+ BBB+ BBB BBB BBB-

Source: 11 We believe these continued efforts by management to

return free cash flow to its shareholders is

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representative of their commitment to their demand for new aircraft and aftermarket products
shareholders and operate with shareholders in mind. and services. On the defense side, new geopolitical
challenges, along with the prioritization of
Gross Margin
modernizing military equipment drove demand. We
Lockheed Martin has historically sat with, or above its expect these trends to continue into 2024. As
peers when looking at gross profit margin. This margin geopolitical instability grows, the aerospace and
can help to analyze a company’s revenue efficiency. In defense industry benefits. We also believe advanced
2023 Lockheed Martin had a gross margin of 12.55%. air mobility and the integration of AI into defense
This is slightly down, as the previous nine years products will continue to drive industry growth.1
averaged at 12.64%. But this is still above its peers
Competitors
that operate in a similar manner to Lockheed, as seen
in the below graphic. This graphic shows Lockheed’s The aerospace and defense industry is highly
operational superiority. competitive. Lockheed Martin’s main competitors are
RTX, Northrup Grumman, Boeing, General Dynamics,
2023 Gross Margin Comparison
and L3Harris Technologies.4 The majority of
Ticker LMT RTX BA GD NOC TXT LDOS competition stems from bidding on program
Gross Margin 13% 5% 10% 10% 6% 9% 8% opportunities from the U.S. Government. Although
Source: 4 this is a competitive industry, the threat of
competition is mitigated through collaboration with
Industry Analysis peers in effort to deliver the best product/service to
customers. Competition for international sales is
The aerospace and defense industry encompasses subject to U.S. Government stipulations.
the development, manufacturing, and deployment of
military and civilian aircraft, spacecraft, missiles, and As you can see from the included financial metric
related technologies. It operates at the forefront of table, Lockheed Martin is well above peers EBITDA
innovation, balancing military requirements with margins. Peers are currently generating revenue
advancements in engineering, materials science, and between $19.4 billion and $ 77.7 billion. Lockheed
digital technologies to ensure national security and Martin is on the higher end of the range and is well
explore the frontiers of space. In 2023, the aerospace above average at $67.6 billion.4
and defense industry generated $453 billion in Company Sales (M) EBITDA Margin
revenue in the United States. This is a 9% growth in Lockheed Martin $ 67,571 14.1
revenue from 2022. Lockheed Martin is the third RTX $ 68,920 10.7
largest company based off revenue generation in the Northrup $ 39,290 9.9
industry following RTX and Boeing. National defense Boeing $ 77,794 1.3
spending in 2023 was $820 billion and is projected to General Dynamic $ 42,272 12.1
increase by 10.66% in 2024 according to White House L3 Technologies $ 19,419 16.4
outlays.4 Average $ 52,544 10.75
Source: 4
Industry Outlook: Positive
F-35 Competitive Advantage
We believe that the aerospace and defense industry is
poised for further growth. This is due to geopolitical Lockheed Martin's F-35 fighter jet offers a competitive
conflict upon us, advancing technologies that attract edge due to its advanced technology, versatility, and
customers, and the constant modernization of global demand. The F-35 generated 26% of total
countries military operations. revenue for Lockheed Martin during 2023.2 As the
world's most advanced stealth aircraft, it provides
Industry Trends
Lockheed Martin with a dominant position in the
In 2023, the aerospace and defense industry defense market, securing substantial contracts and
witnessed a revival in product demand. On the partnerships with various countries. One selected
aerospace side, a surge in air travel led to an increased

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contract is with the Pentagon, signed December 2022 and development funds from the U.S. Government.
for up to 398 F-35s worth $30B.14 For example, Lockheed Martin spent $1.5 billion on
company funded R&D expenses in 2023, while other
The program's success not only boosts Lockheed
R&D is customer funded.3
Martin's revenue streams, but we also think it
positions the company as a leader in next-generation Threat of New Entrants: Low
aerospace technology, ensuring continued relevance The threat of new entrants in the aerospace and
and growth in the future. Peers have also stepped up defense industry is incredibly low. The industry is very
and designed accessory components for the jet, capital intensive and highly regulated. Programs can
which has increased the demand for the F-35. For also take decades to finalize a design. Such
example, the Collins Aerospace branch of RTX has requirements make it extremely hard for new
designed a $400,000 helmet to go along with the jet. companies to break into the industry, especially with
The helmet syncs to sensors on the outside of the jet the proven track record of the current companies in
which allow the pilot to see completely through the the industry. Current companies of the industry also
aircraft and has capabilities to lock onto enemy have massive production scales and would be able to
aircraft through tracking technology in the visor of the outcompete new competitors on pricing.3
helmet.21
Economic Analysis
Porter’s Five Forces

Threat of Competition: Medium GDP Growth

The threat of competition is ranked as Medium due to GDP (Gross Domestic Product) is a measure of a
the low number of competing firms. Although there countries market value of all final goods and services
are a low number of firms in the industry, the firms that produced. According to the International Trade
are present are well established and have a track Association, in 2019 the U.S. aerospace sector
record of success. On the defense side, typically there continued to produce the highest trade balance and
is only two to three firms capable of competing for the made up the second highest level of exports among all
specific types of contracts from the U.S. Government, manufacturing industries.5 Aerospace exports have
and Lockheed Martin is frequently in this category.3 grown at an average rate of 5.31% between 2009 –
2019, complete data is only available through 2019.
Bargaining Power of Customers: Medium With significant global tensions upon us, we expect
In the defense industry, the U.S. Department of the aerospace & defense industry to continue to be
Defense is the primary customer. Due to this, they atop the manufacturing industry exports. Additionally,
have a noticeable amount of bargaining power. The the U.S. government budget is influenced by GDP
Pentagon usually has the final say in contract awards growth. The U.S. government uses GDP as a measure
and can also regulate international sales.3 of economic performance and will adjust their
Bargaining power of Suppliers: Low spending accordingly. This increase in government
Due to the fact that there aren’t many buyers and that spending will lead to defense contracts as the country
customer requests can be highly specialized, looks to maintain its global military presence.
suppliers typically don’t have a lot of bargaining power
in the aerospace and defense industry. The U.S.
Government can dictate terms and specifications
utilizing their power to negotiate favorable deals. With
this, regulations and security considerations can
restrict the pool of potential suppliers, diminishing
their bargaining power.3

Threat of Substitutes: Low

Any industry changing technology is likely to be
developed from within the industry. The industry as a
whole receives a considerable amount of research Source: 5

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Interest Rates Additionally, inflation is used as guidance to the
federal reserve when setting the federal funds rate.
Interest rates have a significant impact on the
The Consumer Price Index (CPI) and Producer Price
aerospace & defense industry. The Federal Reserve
Index (PPI) are two indicators used to measure
oversees setting the federal funds rate. This is the
inflation. For our analysis we have chosen to look at
overnight borrowing rate banks use with each other to
PPI for the total manufacturing industry compared to
meet liquidity requirements. The federal funds rate is
the national defense expenditures. This data is
used as a benchmark by lenders to set their lending
provided in the graph below.
terms. The federal funds rate is currently between
5.25% - 5.50%, which has risen significantly since
March 2022 where it was at 0.25% - 0.50%.10

Source: 10

In March 2022 the manufacturing PPI measure had

seen a year-over-year increase of 20%, while the
national defense expenditure fell almost 1%. Now in
2024 we have a massive switch with 2023 Q4 national
Source: 10
defense expenditures seeing almost a 7% increase
Because the aerospace & defense industry is so compared to -2% for the PPI index.10 This shows us
capital intensive, this increase in borrowing costs will that the defense industry has seen slightly lower costs
alter the performance of companies in the space. for manufacturing while demand for national defense
Additionally, interest can impact government products has seen an uptick. This means Lockheed’s
spending. Since 73% of Lockheed’s revenue stems suppliers should be able to maintain stronger
from the U.S. government, rising interest rates can operations compared to 2022.
impact Lockheed’s success.2 Interest rates also
Supply Chain
impact other pieces of Lockheed’s business,
including its pension obligations. For example, higher The aerospace and defense industry is highly
interest rates reduce the measure of gross pension dependent on a smooth supply chain. If there are
obligations, while lower rates increase it. It is our disruptions in the supply chain, this causes issues for
opinion that we will not see a rate cut made by the companies because most of their contracts come
Federal Reserve in 2024, due to CPI seeing less of a with a time frame. These supply chain issues
change than analysts had hoped in April, 2024.27 stemming from 2021 and 2022 have had a lasting
impact on the aerospace & defense industry, noted in
Inflation
our visual below. These supply chain issues have
Inflation is the devaluation of one’s currency, caused massive backlogs in the industry. For example,
decreasing a company’s purchasing power. The Lockheed Martin has $160.6 billion in backlog as of
purchase of raw materials is a significant portion of December 2023, a $10B increase from the previous
costs in the aerospace & defense industry. Lockheed year.4 We agree with industry surveys that predict
Martin notes that they believe macroeconomic order backlogs to remain elevated in 2024.3
conditions affect the defense industry less than other
industrial sectors, but their suppliers and partners are
more exposed to an economic downturn.2 An
economic downturn could impact their suppliers,
resulting in Lockheed’s operations to be impacted.

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 2028, the U.S. will provide $4B per year in aid. Most of
this aid (82.5%) is provided in the form of grants that
must be used to purchases U.S. military equipment
and services. Since October 7th, the Biden
administration has made more than one hundred
military aid transfers to Israel, with only two meeting
the congressional review threshold and made public.
These each totaled around $250M. In April 2024, the
Biden administration was considering a sale worth
more than $18B to Israel. Israel currently has 39 F-
35s.8
Source: 4
April 14, 2024 Update:
Geopolitical Conflict
On April 13, 2024, Iran launched a wave of drone
Geopolitical conflict directly impacts the aerospace strikes and ballistic missiles into Israel that traveled
and defense industry by fueling demand for military overnight into the 14th. Approximately 350 missiles
equipment and technology to address security were fired toward Israel from Iran, Iraq, Yemen, and
concerns. These conflicts may lead to increased Hezbollah. According to the Israeli military, 99% of
defense budgets, demand for military aircraft, projectiles were intercepted by aerial defense
missiles, and other defense systems. The primary systems and ally support. Light structural damage
conflict right now that are impacting the industry are was caused to an airbase.15
Ukraine and Russia, and Israel and Hamas.
NATO:
Russia – Ukraine: A risk to our thesis is the possibility of Ukraine being
In February 2022, Russia had begun its invasion of admitted into NATO. NATO, or the North Atlantic Treaty
Ukraine. Vladamir Putin’s reasoning for the invasion Organization, is a military alliance of currently 32
was the goal of demilitarizing Ukraine. 19 Between 2014 member states. NATO members have already
- December 2023 the U.S. has provided Ukraine with provided substantial aid to Ukraine and have noted
$47B in aid. Between December 2023 – February they will continue to provide support.25 If Ukraine was
2024, the U.S. has provided $44.2B. On February 13, to join NATO, it is noted in Article 5 of the treaty “If a
2024, the senate passed the National Security Act. If NATO Ally is the victim of an armed attack, each and
enacted this would provide Ukraine $60B with aid.18 every other member of the Alliance will consider this
China is also supportive of Russia and has provided act of violence as an armed attack against all
manufacturing expansion, machine tools, drone and members and will take the actions it deems necessary
turbojet engines and technology for cruise missiles, to assist the Ally attacked.” 26 This in turn may require
microelectronics, and nitrocellulose. In 2023 China the U.S. military to deploy troops into Ukraine, which
had exported 90% of Russia’s micro-electronics used could shift the defense budget away from equipment
to produce missiles, tanks, and aircrafts.7 China has purchases and towards the cost of deploying troops.
not provided lethal weaponry to Russia. Multiple U.S.
officials have noted that Ukraine is falling behind in Future contracts are hard to predict, but with global
weaponry and ammo supplies compared to Russia conflicts underway, other countries look to bolster up
and are calling for more aid to be sent to Ukraine.12 their military. For example, countries like Greece,
Poland, and Turkey have all submitted orders for
Israel – Hamas: Lockheed Martin products in February 2024. Totaling
On October 7, 2023, Hamas and other Palestinian to $33.4B between the three.16 We believe countries
militant groups launched attack from the Gaza Strip will continue to increase military and defense
into the southern part of Israel. Conflicts between spending as conflicts continue to rise. This rise in
Israel and Palestine have been occurring since 1948.22 conflict will post an increased amount of government
Between 1946 – 2023 Israel has received $300B contracts for years to come.
(adjusted for inflation) from the U.S. in aid. Through

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 Additionally, research and development costs are
Valuation Analysis
included in cost of sales, but are not completely listed
out other than company-funded R&D, due to
Revenue customer funded contractual agreements.2 We
Current management guidance and select analyst forecasted operating income in 2024 to be $8,950M,
expectations expect 2024 revenue to be around which is slightly above analyst expectations of about
$70B.20 This would be a 3.6% increase in sales $8,450. We believe analyst aren’t fully factoring in
compared to 2023. These expectations are mainly due backlog refinement in the coming year.4
to Lockheed Martin reaching an all-time backlog high
Capital Expenditures
of $160B, which it expects to recognize 36% of that
backlog in 2024.2 The majority of Lockheed Martin’s capital
expenditures (CapEx) are attributable to equipment,
We believe that these expectations are quite low and
facility infrastructure, and information technology
were produced based on conservative historical
infrastructure.2 We calculated CapEx to be $1.3B for
growth rates from the past few years. In our analysis,
2024. Management does not provide much guidance
we opted to forecast revenue based on U.S. defense
for forecasting CapEx. For our analysis we forecasted
spending forecasts provided by the Whitehouse. The
2024 CapEx based on a historical average. We then
Whitehouse provides estimates through 2029.23
grew the following years by our inflation assumption of
Following the 2029 estimate period provided, we
3%.
opted to grow revenue by our inflation assumption of
3%. Lockheed Martin provides information on how Cost of Equity
much of their revenue stems from the U.S.
We calculated Lockheed Martin’s cost of equity using
Government, which was 73% in 2023.2 We then found
the Capital Asset Pricing Model (CAPM) and produced
how much of the defense budget is specifically
a value of 6.72%. For the risk-free rate we used the
allocated to Lockheed Martin, and used an average of
current yield on the 10-year treasury, which was
the past four years, resulting in a forecasted allocation
4.50% as of our report date.24 For our beta we used the
of 6.32% of the national defense budget.
2-year weekly beta from Bloomberg, which was 0.524.
The Whitehouse expects to see almost 11% growth in We used this time window for the beta, as we believe
defense spending due to conflict in Ukraine and it accurately captures the impact of Russia’s invasion
Israel.23 This increase in spending will be allocated of Ukraine. For the Equity Risk Premium (ERP), we
towards military equipment used by Ukraine and used Damodaran’s April 1st trailing 12-month cash
Israel, directly benefiting Lockheed. This will result in yield calculation, resulting in an ERP of 4.23%.9
16% revenue growth in 2024 but will fall to around
Cost of Debt
1.75% growth per year in the following five years using
the same assumptions. We believe that consensus is We calculated Lockheed Martin’s after-tax cost of
underestimating Lockheed Martin’s revenue and not debt to be 3.85%. For the pre-tax cost of debt, we used
fully factoring in the impact of the defense spending the yield on a 10-year corporate bond issued by
jump. Lockheed. We found this on Bloomberg, and the yield
was 5.04%. We used Lockheed Martin’s marginal tax
Cost of Sales
rate of 23.74% to calculate the after-tax cost of debt.
Lockheed Martin does not provide much guidance for
Weighted Average Cost of Capital
total cost of sales. For our analysis we projected cost
of sales based on the percentage of revenue for both Lockheed Martin’s weighted average cost of capital
products and services using an average of the past few (WACC) is 6.30%. We calculated this using the cost of
years. We took these averages of 91.44% for products, equity of 6.72% and after-tax cost of debt of 3.85%,
and 88.33% for services and applied these to future multiplied by the market value weights for both equity
sales between products and services. We found that and debt. We found these weights to be 85% equity
total cost of sales in 2023 was 87.45% of revenue and and 15% debt.2 This calculated WACC was used as
is stable looking at the previous nine years.

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the discount factor in the DCF and EP valuation equity of 6.72%, we determined our intrinsic stock
model. price. We emphasize our DDM model equal to the DCF
and EP model, but less than the relative valuation
Discounted Cash Flow & Economic Profit
model because of the stable nature of historical and
In our discounted cash flow (DCF) and economic projected dividend growth.
profit (EP) valuation we calculated an intrinsic stock
Relative Valuation
price of $480.29 for Lockheed Martin, this value is $5
below an aggregate of analyst’s price targets.4 We For the relative valuation model, we used named
forecasted a 10-year projection period to forecast free competitors of Lockheed Martin that are working
cash flows. We then discounted these cash flows to towards defense contracts. These companies are RTX,
the present day using our WACC of 6.30%. We Boeing, General Dynamics, TransDigm Group,
calculated free cash flow values by finding the net Northrop Grumman, L3Harris Technologies, Textron,
operating profit less adjusted taxes (NOPLAT), then by and Leidos.4 For our analysis we looked at three
subtracting the change in invested capital (IC). different metrics. P/E (EPS2024), P/E (EPS2025), and
EV/Revenue (2023). In our analysis we decided to
The EP model was calculated by forecasting future
exclude Boeing and TransDigm Group from the
economic profit and discounting it to the present
average calculation of the three metrics, due to these
value using our WACC. The EP for each year was
two companies trading at significantly higher
calculated by taking beginning IC and multiplying it by
multiples than the other named competitors.
the difference between return on invested capital
(ROIC) and WACC. These values for each year were For P/E (EPS2024) we determined an intrinsic stock
added up with the last FYE IC. For both models, we price of $584.32, and for 2025 a stock price of
made non-operating adjustments to calculate the $532.90. We determined an intrinsic stock price of
equity value. We then divided the equity value by the $510.90 when looking at the 2023 enterprise value to
number of shares outstanding to yield an intrinsic revenue multiple. We decided that our best estimate
stock price of $480.29, for both models. for a relative valuation would be to use P/E (EPS2024)
because this multiple considers forward looking
These models are highly sensitive to our NOPLAT
earnings, and factors costs, unlike the EV/Revenue
carrying value (CV) assumption, which we determined
multiple. When compared to peers in the industry,
to be 4.25%. We based our NOPLAT growth
Lockheed Martin is undervalued based on all three
assumption on the average eight-year historical
metrics. We are placing less emphasis on this
growth rate of defense spending, which was 4.25%.
valuation methodology as it can be skewed based on
This is slightly conservative compared to analysts LT
competitor performance.
expectations of 4.9%.4 We believe our DCF and EP
analysis is a fair assumption of the intrinsic stock
price of Lockheed Martin but choose to place an equal Sensitivity Analysis
weight to the dividend discount model due to the
sensitivity of the model when an adjustment to the CV Beta vs. Equity Risk Premium
growth rate is made.
The beta and equity risk premium are key variables
Dividend Discount Model when calculating a companies WACC. As beta and the
equity risk premium decrease, meaning lower
In our dividend discount model (DDM) we calculated
volatility, the intrinsic stock price of Lockheed Martin
an intrinsic stock price of $500.25 for Lockheed
increases. As noted in the below table, slight changes
Martin. We found that Lockheed Martin has steadily
to either variable have a huge impact on Lockheed’s
increased dividends between 70 – 80 cents per year.
WACC, thus leading to a change in stock price. The
We forecasted the next ten years of dividends based
stock price calculated from a 0.05 change in beta, and
on a historical payout ratio of EPS, which we found to
a 0.1% change in the equity risk premium yielded a
be 44%.2 This yielded a slightly slower growth of
range of $331.11 - $747.62.
dividends, of about 62-cents per year. After
discounting these dividends by our calculated cost of

9|Page
 Beta predict due to the long-term time horizon but is still
480.29 0.367 0.419 0.472 0.524 0.576 0.629 0.681
3.93% 747.62 654.51 580.23 519.58 469.13 426.49 389.98 key to the model. The WACC can fluctuate due to the
Equity Risk Premium

4.03% 729.35 638.07 565.29 505.89 456.49 414.76 379.03

cost of equity and debt, the risk-free rate, and the
4.13% 711.86 622.34 551.00 492.80 444.42 403.55 368.58
4.23% 695.12 607.29 537.33 480.29 432.88 392.84 358.59 volatility of Lockheed Martin. Because of these
4.33% 679.07 592.87 524.25 468.31 421.83 382.60 349.03
4.43% 663.67 579.04 511.70 456.83 411.25 372.78 339.88
reasons, both the CV growth and WACC are key to
4.53% 648.88 565.77 499.66 445.82 401.10 363.37 331.11 examine. The stock price calculated from a 0.1%
change to each variable yielded a range of $366.58 -
$687.38.
Marginal Tax Rate vs. Risk-Free Rate CV Growth of NOPLAT
480.29 3.95% 4.05% 4.15% 4.25% 4.35% 4.45% 4.55%
The marginal tax rate is an important metric to look at 6.00% 499.05 522.37 548.22 577.03 609.35 645.84 687.38
because it heavily influences a company’s profit. An 6.10% 471.84 492.73 515.76 541.30 569.75 601.67 637.72
6.20% 447.04 465.84 486.47 509.23 534.45 562.56 594.08

WACC
increase in the tax rate also lowers the after-tax cost 6.30% 424.36 441.34 459.91 480.29 502.76 527.67 555.44
6.40% 403.53 418.93 435.70 454.04 474.17 496.37 520.98
of debt, thus lowering WACC. Included in the WACC 6.50% 384.33 398.35 413.56 430.13 448.24 468.13 490.05
calculation is the risk-free rate. This metric is used in 6.60% 366.58 379.38 393.23 408.25 424.62 442.51 462.15

the cost of equity, and as the risk-free rate increases,

so does WACC. The stock price calculated from a 1%
Product Costs as % of Product Sales vs. CapEx
change in the marginal tax rate, and a 0.1% change in
Growth Rate
the risk-free rate yielded a range of $380.69 - $605.30.
Marginal Tax Rate Product costs are Lockheed Martins largest expense
480.29 20.74% 21.74% 22.74% 23.74% 24.74% 25.74% 26.74%
4.20% 605.30 590.44 575.47 560.38 545.16 529.81 514.34 each year. Additionally, service costs are Lockheed’s
4.30% 574.54 560.22 545.79 531.26 516.60 501.83 486.95 second highest. Slight changes to the costs of sales
Risk-Free Rate

4.40% 546.42 532.61 518.69 504.67 490.54 476.31 461.97

4.50% 520.62 507.27 493.83 480.29 466.65 452.92 439.08 for each variable has immense impact on the
4.60% 496.86 483.95 470.95 457.86 444.68 431.41 418.05
profitability of the company. The stock price
4.70% 474.91 462.40 449.82 437.15 424.40 411.57 398.65
4.80% 454.56 442.44 430.25 417.98 405.63 393.20 380.69 calculated from a 1% change to each variable yielded
a range of $163.65 - $796.93.
Product Costs as % of Product Sales
Pre-Tax Cost of Debt vs. Cost of Equity 480.29 -88.44% -89.44% -90.44% -91.44% -92.44% -93.44% -94.44%
-85.33% 796.93 709.04 621.16 533.27 445.38 357.49 269.61
Service Costs as %
of Service Sales

-86.33% 779.27 691.38 603.50 515.61 427.72 339.83 251.95

Both the pre-tax cost of debt and the cost of equity are -87.33% 761.61 673.72 585.84 497.95 410.06 322.17 234.29
incorporated in the WACC calculation. The pre-tax -88.33% 743.95 656.06 568.18 480.29 392.40 304.51 216.63
-89.33% 726.29 638.40 550.52 462.63 374.74 286.85 198.97
cost of debt can be influenced by interest rates, -90.33% 708.63 620.74 532.86 444.97 357.08 269.19 181.31
-91.33% 690.97 603.08 515.19 427.31 339.42 251.53 163.65
creditworthiness, and overall market conditions. Both
metrics when decreased, decrease WACC overall.
Lockheed Martin is 85% equity financed, so changes
in the cost of equity change the stock price at a greater Conclusion
rate. The stock price calculated from a 0.1% change in
the pre-tax cost of debt, and a 0.1% change in the cost We designated Lockheed Martin as a BUY due to
of equity yielded a range of $411.21 - $572.10. current Geopolitical conflicts in Ukraine and Israel,
Pre-Tax Cost of Debt
480.29 4.74% 4.84% 4.94% 5.04% 5.14% 5.24% 5.34%
and the proven pro-shareholder management team.
6.42% 572.10 568.14 564.23 560.38 556.57 552.80 549.09 We believe Lockheed Martin comes with a potential
6.52% 541.91 538.31 534.76 531.26 527.79 524.37 520.98
Cost of Equity

6.62% 514.38 511.10 507.87 504.67 501.50 498.37 495.28 upside of 14%.
6.72% 489.18 486.19 483.22 480.29 477.39 474.52 471.68
6.82% 466.03 463.28 460.55 457.86 455.19 452.55 449.94
6.92% 444.69 442.15 439.64 437.15 434.69 432.25 429.84
7.02% 424.94 422.60 420.28 417.98 415.70 413.44 411.21

CV Growth of NOPLAT vs. WACC

The DCF model is extremely sensitive to the carrying

value growth of NOPLAT and the calculated WACC.
The CV growth of NOPLAT is a more difficult metric to

10 | P a g e
 Important Disclaimer

This report was created by students enrolled in the

Applied Equity Valuation class at the University of
Iowa. The report was originally created to offer an
internal investment recommendation for the
University of Iowa Krause Fund and its advisory board.
The report also provides potential employers and
other interested parties an example of the student’s
skills, knowledge, and abilities. Members of the
Krause Fund are not registered investment advisors,
brokers, or officially licensed financial professionals.
The investment advice contained in this report does
not represent an offer or solicitation to buy or sell any
of the securities mentioned. Unless otherwise noted,
facts and figures included in this report are from
publicly available sources. This report is not a
complete compilation of data, and its accuracy is not
guaranteed. From time to time, the University of Iowa,
its faculty, staff, students, or the Krause Fund may
hold a financial interest in the companies mentioned
in this report.

11 | P a g e
 [10]. FRED. (2024, April 15).
Citations [Link]

[11] Home. Home | S&P Global Ratings. (n.d.).

[1] Deloitte. (2023, November 29). 2024 aerospace [Link]
and Defense Industry Outlook. Deloitte
Insights. [12] Kelly, L. (2024, April 14). US commitment to
[Link] Ukraine grows murkier. The Hill.
ustry/aerospace-defense/aerospace-and- [Link]
[Link] us-ukraine-strategy-nato-
future/#:~:text=While%20Donfried%20and%20
[2] Lockheedmartin. (n.d.). Daalder%20call,to%20%E2%80%9Csecure%2
[Link] 0Ukraine’s%20future.%E2%80%9D
files/96b4102d-751f-4f12-8cd7-37d9a7e6e697
[13] Market activity market activity
[3] University libraries. Off Campus Access - The [Link]
University of Iowa Libraries. (n.d.). activity/stocks/ldos/dividend-history
[Link]
[Link]/CIQDotNet/Research [14] Pentagon and Lockheed Martin Finalize lot 15-17
/[Link]?documentViewerDoc agreement, capping a year of international
umentId=56771220 growth. Media - Lockheed Martin. (n.d.).
[Link]
[4] FactSet. (n.d.). [Link] 30-Pentagon-and-Lockheed-Martin-Finalize-
Lot-15-17-Agreement,-Capping-a-Year-of-
[5] 44. (n.d.). Leading Economic Indicators International-
Aerospace Industry. International Trade Growth#:~:text=ARLINGTON%2C%20Va.%2C
Administration | [Link]. %20Dec.,the%20option%20for%20Lot%2017.
[Link]
indicators-aerospace-industry [15] Picheta, R. (2024, April 14). Why Iran attacked
Israel and what comes next. CNN.
[6] Adams, M. (2024, March 21). Federal Funds Rate [Link]
history 1990 to 2023. Forbes. /why-iran-attack-israel-intl/[Link]
[Link]
-funds-rate-history/ [16] Smith, R. (2024a, February 11). Lockheed Martin
will sell $23 billion worth of F-16 fighter jets to
[7] Atwood, K. (2024, April 12). China is giving Russia Turkey. The Motley Fool.
significant support to expand weapons [Link]
manufacturing as Ukraine War Continues, US ckheed-martin-will-sell-23-billion-worth-of-f-
officials say | CNN politics. CNN. 16/
[Link]
na-russia-support-weapons- [17] Smith, R. (2024b, March 26). Why is Poland
manufacturing/[Link] buying $3.5 billion in missiles from RTX and
Lockheed Martin?. The Motley Fool.
[8] Council on Foreign Relations. (n.d.). U.S. aid to [Link]
Israel in four charts. Council on Foreign oland-buys-missiles-from-rtx-and-lockheed-
Relations. [Link] martin/
israel-four-charts
[18] U.S. security assistance to Ukraine - CRS
[9] Damodaran online: Home page for Aswath Reports. (n.d.).
Damodaran. (n.d.). [Link]
[Link] /IF12040

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[19] Wikimedia Foundation. (2024, February 26).
Timeline of the Russian invasion of Ukraine.
Wikipedia.
[Link]
Russian_invasion_of_Ukraine

[20] Quarterly Results Archive. Lockheed Martin

Corp. (n.d.).
[Link]
l-information/quarterly-results

[21] F-35 Gen III helmet mounted display system. CA.

(n.d.).
[Link]
do/industries/military-and-defense/displays-
and-controls/airborne/helmet-mounted-
displays/f-35-gen-iii-helmet-mounted-display-
system

[22] Wikimedia Foundation. (2024b, March 21).

Timeline of the israel–hamas war. Wikipedia.
[Link]
srael%E2%80%93Hamas_war

[23] The United States Government. (2024, March

11). President’s budget. The White House.
[Link]

[24] CNBC. (n.d.). Check out US Treasury-current 10

year’s stock price (US10Y) in Real time. CNBC.
[Link]

[25] Nato. (2024, April 3). Foreign ministers agree to

move forward with planning for a greater NATO
role in Coordinating Aid to Ukraine. NATO.
[Link]
[Link]

[26] Nato. (2024a, February 6). Collective defence

and Article 5. NATO.
[Link]
[Link]#:~:text=Article%205%20provides%2
0that%20if,to%20assist%20the%20Ally%20att
acked.

[27] Inc., E. (n.d.). 2024 economic calendar. 2024

Economic Calendar.
[Link]

13 | P a g e
Lockheed Martin Corporation
Revenue Decomposition

Fiscal Years Ending Dec. 31 2021 2022 2023 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E
U.S. Defense Spending 753,897 765,649 820,263 907,728 926,763 932,953 947,240 967,053 988,661 1,018,321 1,048,870 1,080,337 1,112,747
Growth % 4.04% 1.56% 7.13% 10.66% 2.10% 0.67% 1.53% 2.09% 2.23% 3.00% 3.00% 3.00% 3.00%
% of Sales from U.S. Gov. 71% 73% 73% 73% 73% 73% 73% 73% 73% 73% 73% 73% 73%
Revnue from U.S. Gov. 47,601 48,168 49,327 57,409 58,612 59,004 59,907 61,160 62,527 64,403 66,335 68,325 70,375
Allocation of Defense Budget % 6.31% 6.29% 6.01% 6.32% 6.32% 6.32% 6.32% 6.32% 6.32% 6.32% 6.32% 6.32% 6.32%
Non-U.S. Gov. Revenue 19,443 17,816 18,244 21,233 21,679 21,823 22,158 22,621 23,126 23,820 24,535 25,271 26,029
Non-U.S. Gov. Revenue % 29% 27% 27% 27% 27% 27% 27% 27% 27% 27% 27% 27% 27%
Total Revenue 67,044 65,984 67,571 78,642 80,291 80,827 82,065 83,781 85,654 88,223 90,870 93,596 96,404

Net sales
Aeronautics 26,748 26,987 27,474 31,975 32,646 32,864 33,367 34,065 34,826 35,871 36,947 38,056 39,197
Growth % 1.84% 0.89% 1.80% 16.38% 2.10% 0.67% 1.53% 2.09% 2.23% 3.00% 3.00% 3.00% 3.00%
Missiles and Fire Control 11,693 11,317 11,253 13,097 13,371 13,461 13,667 13,953 14,264 14,692 15,133 15,587 16,055
Growth % 3.87% -3.22% -0.57% 16.38% 2.10% 0.67% 1.53% 2.09% 2.23% 3.00% 3.00% 3.00% 3.00%
Rotary and Mission Systems 16,789 16,148 16,239 18,900 19,296 19,425 19,722 20,135 20,585 21,202 21,838 22,493 23,168
Growth % 4.96% -3.82% 0.56% 16.38% 2.10% 0.67% 1.53% 2.09% 2.23% 3.00% 3.00% 3.00% 3.00%
Space 11,814 11,532 12,605 14,670 14,978 15,078 15,309 15,629 15,978 16,458 16,951 17,460 17,984
Growth % -0.56% -2.39% 9.30% 16.38% 2.10% 0.67% 1.53% 2.09% 2.23% 3.00% 3.00% 3.00% 3.00%
Total Net Sales 67,044 65,984 67,571 78,642 80,291 80,827 82,065 83,781 85,654 88,223 90,870 93,596 96,404
Growth % 2.52% -1.58% 2.41% 16.38% 2.10% 0.67% 1.53% 2.09% 2.23% 3.00% 3.00% 3.00% 3.00%

Net sales
Aeronautics 26,748 26,987 27,474 31,975 32,646 32,864 33,367 34,065 34,826 35,871 36,947 38,056 39,197
% of Net Sales 40% 41% 41% 41% 41% 41% 41% 41% 41% 41% 41% 41% 41%
Missiles and Fire Control 11,693 11,317 11,253 13,097 13,371 13,461 13,667 13,953 14,264 14,692 15,133 15,587 16,055
% of Net Sales 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17% 17%
Rotary and Mission Systems 16,789 16,148 16,239 18,900 19,296 19,425 19,722 20,135 20,585 21,202 21,838 22,493 23,168
% of Net Sales 25% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24%
Space 11,814 11,532 12,605 14,670 14,978 15,078 15,309 15,629 15,978 16,458 16,951 17,460 17,984
% of Net Sales 18% 17% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19%
Total Net Sales 67,044 65,984 67,571 78,642 80,291 80,827 82,065 83,781 85,654 88,223 90,870 93,596 96,404
Lockheed Martin Corporation
Income Statement

Fiscal Years Ending Dec. 31 2021 2022 2023 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E

Total net sales 67,044 65,984 67,571 78,642 80,291 80,827 82,065 83,781 85,654 88,223 90,870 93,596 96,404
Products 56,435 55,466 56,265 65,483 66,857 67,303 68,334 69,763 71,322 73,462 75,665 77,935 80,273
Services 10,609 10,518 11,306 13,158 13,434 13,524 13,731 14,018 14,332 14,762 15,204 15,660 16,130
Total Cost of sales (57,983) (57,697) (59,092) (68,862) (70,344) (70,825) (71,927) (73,451) (75,109) (77,386) (79,728) (82,137) (84,616)
Products (51,381) (50,761) (51,636) (59,881) (61,137) (61,545) (62,488) (63,795) (65,220) (67,177) (69,192) (71,268) (73,406)
Services (9,434) (9,252) (10,027) (11,622) (11,866) (11,945) (12,128) (12,382) (12,658) (13,038) (13,429) (13,832) (14,247)
Depreciation and Amortization 1,364 1,404 1,430 1,384 1,375 1,373 1,377 1,386 1,400 1,418 1,441 1,467 1,496
Depreciation 904 903 920 1,073 1,108 1,143 1,179 1,216 1,254 1,293 1,333 1,374 1,416
Amortization 460 501 510 310 267 229 197 170 146 125 108 93 80
Severance charges (36) (100) (92) (63) (64) (65) (66) (67) (69) (71) (73) (75) (77)
Other unallocated, net 1,504 1,012 1,233 1,321 1,348 1,357 1,378 1,407 1,438 1,481 1,526 1,572 1,619
Gross profit 9,061 8,287 8,479 9,779 9,947 10,002 10,138 10,330 10,544 10,837 11,142 11,459 11,788
Other income / expense, net 62 61 28 59 56 50 57 56 57 60 61 63 65
Operating profit 9,123 8,348 8,507 9,839 10,003 10,052 10,195 10,387 10,601 10,897 11,203 11,521 11,852
Interest expense (569) (623) (916) (880) (843) (876) (918) (907) (907) (904) (929) (925) (982)
Other non-operating income / expense, net (1,004) (1,045) 507 0 0 0 0 0 0 0 0 0 0
Non-service FAS pension / expense income (1,292) (971) 443 0 0 0 0 0 0 0 0 0 0
Other non-operating income / expense 288 (74) 64 0 0 0 0 0 0 0 0 0 0
Earnings before income taxes 7,550 6,680 8,098 8,958 9,160 9,176 9,276 9,479 9,694 9,993 10,273 10,597 10,871
Income tax expense (1,235) (948) (1,178) (2,127) (2,175) (2,178) (2,202) (2,251) (2,302) (2,372) (2,439) (2,516) (2,581)
Net earnings from continuing operations 6,315 5,732 6,920 6,831 6,985 6,997 7,074 7,229 7,393 7,621 7,834 8,081 8,290
Net earnings 6,315 5,732 6,920 6,831 6,985 6,997 7,074 7,229 7,393 7,621 7,834 8,081 8,290

Reported Share Information

Shares Outstanding 271.00 254.00 240.00 232.34 226.78 221.73 217.21 213.09 209.34 205.94 202.85 200.06 197.58
Basic Shares (weighted) 276.40 263.70 250.30 236.17 229.56 224.25 219.47 215.15 211.22 207.64 204.40 201.46 198.82
Basic Earnings Per share 22.85 21.74 27.65 28.93 30.43 31.20 32.23 33.60 35.00 36.70 38.33 40.11 41.69
Annual Dividend Per Share 10.60 11.40 12.15 12.71 13.37 13.71 14.16 14.76 15.38 16.13 16.84 17.63 18.32
Lockheed Martin Corporation
Balance Sheet

Fiscal Years Ending Dec. 31 2021 2022 2023 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E

Total assets 50,873 52,880 52,456 53,978 55,440 56,943 57,767 59,112 60,652 63,160 65,310 68,934 72,230
Total current assets 19,815 20,991 20,521 21,371 22,517 23,702 24,131 25,018 26,054 27,992 29,535 32,515 35,134
Cash and cash equivalents 3,604 2,547 1,442 1,424 2,151 3,200 3,315 3,767 4,328 5,614 6,485 8,774 10,681
Receivables, net 1,963 2,505 2,132 2,481 2,533 2,550 2,589 2,643 2,703 2,784 2,867 2,953 3,042
Contract assets 10,579 12,318 13,183 13,174 13,450 13,540 13,747 14,035 14,348 14,779 15,222 15,679 16,149
Inventories, net 2,981 3,088 3,132 3,607 3,683 3,708 3,764 3,843 3,929 4,047 4,168 4,293 4,422
Other current assets 688 533 632 685 700 704 715 730 747 769 792 816 840
Property, plant and equipment, net 7,597 7,975 8,370 8,640 8,917 9,199 9,487 9,783 10,086 10,398 10,717 11,045 11,382
Property, plant and equipment 19,100 20,138 21,182 22,526 23,909 25,335 26,803 28,315 29,872 31,477 33,129 34,831 36,584
Accumulated Depreciation 11,503 12,163 12,812 13,885 14,993 16,136 17,315 18,532 19,786 21,079 22,412 23,786 25,202
Goodwill 10,813 10,780 10,799 10,799 10,799 10,799 10,799 10,799 10,799 10,799 10,799 10,799 10,799
Intangible assets, net 2,706 2,459 2,212 1,902 1,635 1,405 1,208 1,038 893 767 660 567 488
Deferred income taxes, net 2,290 3,744 2,953 3,437 3,509 3,532 3,586 3,661 3,743 3,856 3,971 4,090 4,213
Other noncurrent assets 7,652 6,931 7,601 7,829 8,064 8,306 8,555 8,812 9,076 9,348 9,629 9,918 10,215
Assets of discontinued operations

Total liabilities and stockholders' equity 50,873 52,880 52,456 53,978 55,440 56,943 57,767 59,112 60,652 63,160 65,310 68,934 72,230
Total liabilities 39,914 43,614 45,621 47,313 48,040 48,673 48,446 48,555 48,673 49,550 49,865 51,436 52,463
Total current liabilities 13,997 15,887 16,937 19,563 20,474 21,275 21,165 21,342 21,491 22,347 22,605 24,083 24,982
Accounts payable 780 2,117 2,312 2,691 2,747 2,766 2,808 2,867 2,931 3,019 3,109 3,202 3,299
Other current liabilities 5,110 5,164 5,267 6,177 6,306 6,348 6,446 6,580 6,728 6,929 7,137 7,351 7,572
Salaries, benefits and payroll taxes 3,108 3,075 3,133 3,690 3,767 3,793 3,851 3,931 4,019 4,140 4,264 4,392 4,524
Other current liabilities 2,002 2,089 2,134 2,487 2,539 2,556 2,595 2,649 2,708 2,790 2,873 2,960 3,048
Contract liabilities 8,107 8,488 9,190 10,696 10,920 10,993 11,161 11,395 11,649 11,999 12,359 12,730 13,111
Current maturities of long-term debt 118 168 0 500 1,168 750 500 183 400 0 800 1,000
Long-term debt, net 11,670 15,429 17,291 16,716 16,878 17,041 17,243 17,478 17,736 18,028 18,340 18,670 19,017
Accrued pension liabilities 8,319 5,472 6,162 5,546 4,930 4,313 3,697 3,081 2,465 1,849 1,232 616 0
Other noncurrent liabilities 5,928 6,826 5,231 5,489 5,759 6,043 6,341 6,654 6,982 7,326 7,687 8,066 8,464
Total equity 10,959 9,266 6,835 6,665 7,400 8,271 9,321 10,557 11,978 13,610 15,445 17,498 19,767
Total stockholders' equity 10,959 9,266 6,835 6,665 7,400 8,271 9,321 10,557 11,978 13,610 15,445 17,498 19,767
Common stock 365 346 240 240 240 240 240 240 240 240 240 240 240
Retained earnings 21,600 16,943 15,398 15,228 15,963 16,834 17,884 19,120 20,541 22,173 24,008 26,061 28,330
Accumulated other comprehensive loss / income -11,006 -8,023 -8,803 -8,803 -8,803 -8,803 -8,803 -8,803 -8,803 -8,803 -8,803 -8,803 -8,803
Lockheed Martin Corporation
Historical Cash Flow Statement

Fiscal Years Ending Dec. 31 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Net cash provided by operating activities 3,866 5,101 5,189 6,476 3,138 7,311 8,183 9,221 7,802 7,920
Net earnings 3,614 3,605 5,173 1,963 5,046 6,230 6,833 6,315 5,732 6,920
Adjustments to reconcile net earnings 252 1,496 16 4,513 (1,908) 1,081 1,350 2,906 2,070 1,000
Depreciation and amortization 994 1,026 1,215 1,195 1,161 1,189 1,290 1,364 1,404 1,430
Stock-based compensation 164 138 149 158 173 189 221 227 238 265
Equity method investment impairment 0 0 128
Tax resolution related to former IS&GS business 0 0 55
Goodwill impairment charges 119
Pension settlement charge 0 0 1,665 1,470 0
Severance charges / credits 0 102 99 0 96 0 27 36 100 92
Deferred income taxes (401) (445) (193) 3,448 (244) 222 5 (183) (757) (498)
Gain on property sale 0 0 (198) 0 (51)
Gain on divestiture of IS&GS business segment 0 0 (1,201) (73)
Gain on step acquisition of AWE 0 0 (104)
Changes in assets and liabilities (624) 675 51 (17) (3,094) (468) (376) (203) (385) (289)
Receivables, net 28 (256) 598 (902) (179) 107 359 15 (542) 373
Contract assets (1,246) 390 (1,480) 378 (451) (1,034) (1,739) (865)
Inventories, net 77 (398) 173 (79) (119) (622) 74 564 (107) (44)
Accounts payable 95 (160) (188) (189) 914 (1,098) (372) (98) 1,274 151
Customer advances and amounts in excess of costs incurred (572) (32)
Contract liabilities (163) 353 (537) 563 491 562 381 702
Income taxes 351 (48) 146 (1,210) 1,077 (151) (19) 45 148 (133)
Postretirement benefit plans (880) 1,068 1,028 1,316 (3,574) 81 (1,197) (267) (412) (378)
Other, net 277 501 (297) 304 804 274 739 10 612 (95)

Net cash used for / provided by investing activities (1,723) (9,734) (985) (1,147) (1,075) (1,241) (2,010) (1,161) (1,789) (1,694)
Capital expenditures (845) (939) (1,063) (1,177) (1,278) (1,484) (1,766) (1,522) (1,670) (1,691)
Expenditures for property, plant and equipment
Expenditures for capitalized internal-use software
Other, net (878) (8,795) 78 30 203 243 (244) 361 (119) (3)
Other, net excluding maturities of short-term investments (878) (8,795) 78
Acquisitions of businesses and investments in affiliates (898) (9,003)
Other, net excluding acquisitions 20 208 78

Net cash used for / provided by financing activities (3,314) 4,277 (3,457) (4,305) (4,152) (5,328) (4,527) (7,616) (7,070) (7,331)
Repayments of / proceeds from commercial paper, net 0 0 600 (600)
Proceeds from issuance of commercial paper, net 0 0 600
Repayments of commercial paper, net 0 (600)
Special cash payment from divestiture of IS&GS business segment 0 0 1,800
Repayments of long-term debt 0 9,101 (952) 0 (750) (900) (519) (500) 3,961 1,860
Issuance of long-term debt, net of related costs 0 9,101 0 0 1,131 0 6,211 1,975
Repayments of long-term debt 0 0 (750) (900) (1,650) (500) (2,250) (115)
Proceeds from borrowings under revolving credit facilities 0 6,000
Repayments of borrowings under revolving credit facilities 0 (6,000)
Repurchases of common stock (1,900) (3,071) (2,096) (2,001) (1,492) (1,200) (1,100) (4,087) (7,900) (6,000)
Dividends paid (1,760) (1,932) (2,048) (2,163) (2,347) (2,556) (2,764) (2,940) (3,016) (3,056)
Other, net 346 179 (161) (141) (163) (72) (144) (89) (115) (135)
Proceeds from stock option exercises 308 174
Other, net 38 5

Net change in cash and cash equivalents (1,171) (356) 747 1,024 (2,089) 742 1,646 444 (1,057) (1,105)
Cash and cash equivalents at beginning of period 2,617 1,446 1,090 1,837 2,861 772 1,514 3,160 3,604 2,547
Cash and cash equivalents at end of period 1,446 1,090 1,837 2,861 772 1,514 3,160 3,604 2,547 1,442
Lockheed Martin Corporation
Forecasted Cash Flow Statement

Fiscal Years Ending Dec. 31 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E

Net cash provided by operating activities 9,657 8,279 8,344 8,390 8,531 8,702 8,914 9,147 9,415 9,649
Net Earnings 6,831 6,985 6,997 7,074 7,229 7,393 7,621 7,834 8,081 8,290
Depreciation 1,073 1,108 1,143 1,179 1,216 1,254 1,293 1,333 1,374 1,416
Receivables, net (349) (52) (17) (39) (54) (59) (81) (84) (86) (89)
Contract assets 9 (276) (90) (207) (288) (314) (430) (443) (457) (470)
Inventories, net (475) (76) (25) (57) (79) (86) (118) (121) (125) (129)
Other current assets (53) (14) (5) (11) (15) (16) (22) (23) (24) (24)
Intangible assets, net 310 267 229 197 170 146 125 108 93 80
Deferred income taxes (484) (72) (23) (54) (75) (82) (112) (116) (119) (123)
Accounts payable 379 56 18 42 59 64 88 91 93 96
Salaries, benefits and payroll taxes 557 77 25 58 81 88 121 124 128 132
Other current liabilities 353 52 17 39 54 59 81 84 86 89
Contract liabilities 1,506 224 73 168 233 255 349 360 371 382
ESOP 0 0 0 0 0 0 0 0 0 0

Net cash used for / provided by investing activities (1,572) (1,619) (1,667) (1,717) (1,769) (1,822) (1,876) (1,933) (1,991) (2,050)
Capital Expenditures (1,344) (1,384) (1,425) (1,468) (1,512) (1,557) (1,604) (1,652) (1,702) (1,753)
Other noncurrent assets (228) (235) (242) (249) (257) (264) (272) (280) (289) (298)

Net cash used for / provided by financing activities (8,104) (5,933) (5,628) (6,558) (6,311) (6,319) (5,751) (6,343) (5,135) (5,692)
Current maturities of long-term debt (168) 500 668 (418) (250) (317) 217 (400) 800 200
Long-term debt, net (575) 162 163 202 235 258 292 312 330 347
Accrued pension liabilities (616) (616) (616) (616) (616) (616) (616) (616) (616) (616)
Other noncurrent liabilities 258 271 284 298 313 328 344 361 379 398
Repurchases of common stock (4,000) (3,180) (3,052) (2,915) (2,816) (2,723) (2,640) (2,557) (2,477) (2,378)
Dividends paid (3,002) (3,069) (3,075) (3,108) (3,176) (3,249) (3,349) (3,443) (3,551) (3,643)

Net change in cash and cash equivalents (18) 728 1,049 115 451 561 1,286 871 2,289 1,907
Cash and cash equivalents at beginning of period 1,442 1,424 2,151 3,200 3,315 3,767 4,328 5,614 6,485 8,774
Cash and cash equivalents at end of period 1,424 2,151 3,200 3,315 3,767 4,328 5,614 6,485 8,774 10,681
Lockheed Martin Corporation
Common Size Income Statement

Fiscal Years Ending Dec. 31 2021 2022 2023 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E

Total net sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Products 84.18% 84.06% 83.27% 83.27% 83.27% 83.27% 83.27% 83.27% 83.27% 83.27% 83.27% 83.27% 83.27%
Services 15.82% 15.94% 16.73% 16.73% 16.73% 16.73% 16.73% 16.73% 16.73% 16.73% 16.73% 16.73% 16.73%
Total Cost of sales -86.48% -87.44% -87.45% -87.56% -87.61% -87.63% -87.65% -87.67% -87.69% -87.72% -87.74% -87.76% -87.77%
Products -76.64% -76.93% -76.42% -76.14% -76.14% -76.14% -76.14% -76.14% -76.14% -76.14% -76.14% -76.14% -76.14%
Services -14.07% -14.02% -14.84% -14.78% -14.78% -14.78% -14.78% -14.78% -14.78% -14.78% -14.78% -14.78% -14.78%
Depreciation and Amortization 2.03% 2.13% 2.12% 1.76% 1.71% 1.70% 1.68% 1.65% 1.63% 1.61% 1.59% 1.57% 1.55%
Depreciation 1.35% 1.37% 1.36% 1.36% 1.38% 1.41% 1.44% 1.45% 1.46% 1.47% 1.47% 1.47% 1.47%
Amortization 0.82% 0.90% 0.91% 0.47% 0.40% 0.34% 0.29% 0.24% 0.20% 0.17% 0.14% 0.12% 0.10%
Severance charges -0.05% -0.15% -0.14% -0.08% -0.08% -0.08% -0.08% -0.08% -0.08% -0.08% -0.08% -0.08% -0.08%
Other unallocated, net 2.24% 1.53% 1.82% 1.68% 1.68% 1.68% 1.68% 1.68% 1.68% 1.68% 1.68% 1.68% 1.68%
Gross profit 13.52% 12.56% 12.55% 12.51% 12.46% 12.44% 12.42% 12.40% 12.38% 12.35% 12.33% 12.31% 12.29%
Other income / expense, net 0.09% 0.09% 0.04% 0.08% 0.07% 0.06% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07%
Operating profit 13.61% 12.65% 12.59% 12.51% 12.46% 12.44% 12.42% 12.40% 12.38% 12.35% 12.33% 12.31% 12.29%
Interest expense -0.85% -0.94% -1.36% -1.12% -1.05% -1.08% -1.12% -1.08% -1.06% -1.02% -1.02% -0.99% -1.02%
Other non-operating income / expense, net -1.50% -1.58% 0.75% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Non-service FAS pension / expense income -1.93% -1.47% 0.66% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other non-operating income / expense 0.43% -0.11% 0.09% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Earnings before income taxes 11.26% 10.12% 11.98% 11.39% 11.41% 11.35% 11.30% 11.31% 11.32% 11.33% 11.31% 11.32% 11.28%
Income tax expense -1.84% -1.44% -1.74% -2.70% -2.71% -2.70% -2.68% -2.69% -2.69% -2.69% -2.68% -2.69% -2.68%
Net earnings from continuing operations 9.42% 8.69% 10.24% 8.69% 8.70% 8.66% 8.62% 8.63% 8.63% 8.64% 8.62% 8.63% 8.60%
Net earnings / loss from discontinued operations 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Net earnings 9.42% 8.69% 10.24% 8.69% 8.70% 8.66% 8.62% 8.63% 8.63% 8.64% 8.62% 8.63% 8.60%
Lockheed Martin Corporation
Common Size Balance Sheet
Brett Olmstead
Fiscal Years Ending Dec. 31 2021 2022 2023 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E

Total assets 75.88% 80.14% 77.63% 68.64% 69.05% 70.45% 70.39% 70.55% 70.81% 71.59% 71.87% 73.65% 74.92%
Total current assets 29.56% 31.81% 30.37% 27.18% 28.04% 29.32% 29.41% 29.86% 30.42% 31.73% 32.50% 34.74% 36.44%
Cash and cash equivalents 5.38% 3.86% 2.13% 1.81% 2.68% 3.96% 4.04% 4.50% 5.05% 6.36% 7.14% 9.37% 11.08%
Receivables, net 2.93% 3.80% 3.16% 3.16% 3.16% 3.16% 3.16% 3.16% 3.16% 3.16% 3.16% 3.16% 3.16%
Contract assets 15.78% 18.67% 19.51% 16.75% 16.75% 16.75% 16.75% 16.75% 16.75% 16.75% 16.75% 16.75% 16.75%
Inventories, net 4.45% 4.68% 4.64% 4.59% 4.59% 4.59% 4.59% 4.59% 4.59% 4.59% 4.59% 4.59% 4.59%
Other current assets 1.03% 0.81% 0.94% 0.87% 0.87% 0.87% 0.87% 0.87% 0.87% 0.87% 0.87% 0.87% 0.87%
Property, plant and equipment, net 11.33% 12.09% 12.39% 10.99% 11.11% 11.38% 11.56% 11.68% 11.78% 11.79% 11.79% 11.80% 11.81%
Property, plant and equipment 28.49% 30.52% 31.35% 28.64% 29.78% 31.34% 32.66% 33.80% 34.88% 35.68% 36.46% 37.21% 37.95%
Accumulated Depreciation 17.16% 18.43% 18.96% 17.66% 18.67% 19.96% 21.10% 22.12% 23.10% 23.89% 24.66% 25.41% 26.14%
Goodwill 16.13% 16.34% 15.98% 13.73% 13.45% 13.36% 13.16% 12.89% 12.61% 12.24% 11.88% 11.54% 11.20%
Intangible assets, net 4.04% 3.73% 3.27% 2.42% 2.04% 1.74% 1.47% 1.24% 1.04% 0.87% 0.73% 0.61% 0.51%
Deferred income taxes 3.42% 5.67% 4.37% 4.37% 4.37% 4.37% 4.37% 4.37% 4.37% 4.37% 4.37% 4.37% 4.37%
Other noncurrent assets 11.41% 10.50% 11.25% 9.96% 10.04% 10.28% 10.42% 10.52% 10.60% 10.60% 10.60% 10.60% 10.60%

Total liabilities and stockholders' equity 75.88% 80.14% 77.63% 68.64% 69.05% 70.45% 70.39% 70.55% 70.81% 71.59% 71.87% 73.65% 74.92%
Total liabilities 59.53% 66.10% 67.52% 60.16% 59.83% 60.22% 59.03% 57.95% 56.83% 56.16% 54.88% 54.96% 54.42%
Total current liabilities 20.88% 24.08% 25.07% 24.88% 25.50% 26.32% 25.79% 25.47% 25.09% 25.33% 24.88% 25.73% 25.91%
Accounts payable 1.16% 3.21% 3.42% 3.42% 3.42% 3.42% 3.42% 3.42% 3.42% 3.42% 3.42% 3.42% 3.42%
Other current liabilities 7.62% 7.83% 7.79% 7.85% 7.85% 7.85% 7.85% 7.85% 7.85% 7.85% 7.85% 7.85% 7.85%
Salaries, benefits and payroll taxes 4.64% 4.66% 4.64% 4.69% 4.69% 4.69% 4.69% 4.69% 4.69% 4.69% 4.69% 4.69% 4.69%
Other current liabilities 2.99% 3.17% 3.16% 3.16% 3.16% 3.16% 3.16% 3.16% 3.16% 3.16% 3.16% 3.16% 3.16%
Contract liabilities 12.09% 12.86% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60%
Current maturities of long-term debt 0.00% 0.18% 0.25% 0.00% 0.62% 1.45% 0.91% 0.60% 0.21% 0.45% 0.00% 0.85% 1.04%
Long-term debt, net 17.41% 23.38% 25.59% 21.26% 21.02% 21.08% 21.01% 20.86% 20.71% 20.43% 20.18% 19.95% 19.73%
Accrued pension liabilities 12.41% 8.29% 9.12% 7.05% 6.14% 5.34% 4.51% 3.68% 2.88% 2.10% 1.36% 0.66% 0.00%
Other noncurrent liabilities 8.84% 10.34% 7.74% 6.98% 7.17% 7.48% 7.73% 7.94% 8.15% 8.30% 8.46% 8.62% 8.78%
Liabilities of discontinued operations 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total equity 16.35% 14.04% 10.12% 8.47% 9.22% 10.23% 11.36% 12.60% 13.98% 15.43% 17.00% 18.70% 20.50%
Total stockholders' equity 16.35% 14.04% 10.12% 8.47% 9.22% 10.23% 11.36% 12.60% 13.98% 15.43% 17.00% 18.70% 20.50%
Common stock 0.54% 0.52% 0.36% 0.31% 0.30% 0.30% 0.29% 0.29% 0.28% 0.27% 0.26% 0.26% 0.25%
Retained earnings 32.22% 25.68% 22.79% 19.36% 19.88% 20.83% 21.79% 22.82% 23.98% 25.13% 26.42% 27.84% 29.39%
Accumulated other comprehensive loss / income -16.42% -12.16% -13.03% -11.19% -10.96% -10.89% -10.73% -10.51% -10.28% -9.98% -9.69% -9.41% -9.13%
Lockheed Martin Corporation
Value Driver Estimation

Fiscal Years Ending Dec. 31 2021 2022 2023 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E

NOPLAT:
Net Sales 67,044 65,984 67,571 78,642 80,291 80,827 82,065 83,781 85,654 88,223 90,870 93,596 96,404
- Product & Service Cost of Sales 59,451 58,609 60,233 70,120 71,628 72,118 73,239 74,791 76,479 78,797 81,181 83,634 86,158
- Depreciation and Amoritization 1,364 1,404 1,430 1,384 1,375 1,373 1,377 1,386 1,400 1,418 1,441 1,467 1,496
- Severance charges (36) (100) (92) (63) (64) (65) (66) (67) (69) (71) (73) (75) (77)
- Other unallocated, net 1,504 1,012 1,233 1,321 1,348 1,357 1,378 1,407 1,438 1,481 1,526 1,572 1,619
+ Implied Interest on Operating Leases 53 64 56 57 59 61 63 65 67 69 71 73 76
EBITA 4,814 5,123 4,823 5,938 6,063 6,105 6,200 6,330 6,472 6,666 6,866 7,072 7,285
Adjusted Taxes:
Income Tax Provision 1,235 948 1,178 2,127 2,175 2,178 2,202 2,251 2,302 2,372 2,439 2,516 2,581
+ Tax Shield on Operating Lease Interest 13 16 13 14 14 15 15 15 16 16 17 17 18
+ Tax Shield on Interest Expense 142 152 217 209 200 208 218 215 215 215 221 220 233
+/- Tax Shield on Non-Operating Loss/Income (72) 18 (15) 0 0 0 0 0 0 0 0 0 0
+ Tax Shield on Amortized Goodwill 0 0 0 0 0 0 0 0 0 0 0 0 0
- Total Adjusted Taxes 1,318 1,134 1,394 2,349 2,389 2,401 2,435 2,481 2,533 2,603 2,677 2,753 2,832
+ Change in Deferred Taxes (1,185) 1,454 (791) 484 72 23 54 75 82 112 116 119 123
NOPLAT 2,311 5,443 2,639 4,073 3,747 3,728 3,819 3,924 4,021 4,175 4,305 4,439 4,575

Invested Capital (IC):

+ Normal Cash 335 330 338 393 401 404 410 419 428 441 454 468 482
+ Receivables, net 1,963 2,505 2,132 2,481 2,533 2,550 2,589 2,643 2,703 2,784 2,867 2,953 3,042
+ Inventories, net 2,981 3,088 3,132 3,607 3,683 3,708 3,764 3,843 3,929 4,047 4,168 4,293 4,422
+ Other current assets 688 533 632 685 700 704 715 730 747 769 792 816 840
+ Contract Assets 10,579 12,318 13,183 13,174 13,450 13,540 13,747 14,035 14,348 14,779 15,222 15,679 16,149
- Contract Liabilities 8,107 8,488 9,190 10,696 10,920 10,993 11,161 11,395 11,649 11,999 12,359 12,730 13,111
- Accounts payable 780 2,117 2,312 2,691 2,747 2,766 2,808 2,867 2,931 3,019 3,109 3,202 3,299
- Customer advances 0 0 0 0 0 0 0 0 0 0 0 0 0
- Salaries, benefits and payroll taxes 3,108 3,075 3,133 3,690 3,767 3,793 3,851 3,931 4,019 4,140 4,264 4,392 4,524
Net Operating Working Capital 4,551 5,094 4,782 3,264 3,333 3,355 3,406 3,478 3,555 3,662 3,772 3,885 4,002
+ Net PPE 7,597 7,975 8,370 8,640 8,917 9,199 9,487 9,783 10,086 10,398 10,717 11,045 11,382
+ PV of Operating Leases 1,269 1,120 1,102 1,138 1,174 1,211 1,249 1,288 1,328 1,369 1,411 1,454 1,499
+ Net Other Operating Assets 688 533 632 685 700 704 715 730 747 769 792 816 840
- Other Operating Liabilities 2,002 2,089 2,134 2,487 2,539 2,556 2,595 2,649 2,708 2,790 2,873 2,960 3,048
Invested Capital (IC): 12,103 12,633 12,752 11,241 11,584 11,914 12,263 12,630 13,008 13,408 13,818 14,240 14,674

Free Cash Flow (FCF):

NOPLAT 2,311 5,443 2,639 4,073 3,747 3,728 3,819 3,924 4,021 4,175 4,305 4,439 4,575
- Change in IC (423) 530 119 (1,511) 343 329 350 367 378 400 411 422 434
FCF 2,734 4,913 2,520 5,583 3,404 3,398 3,469 3,557 3,643 3,775 3,895 4,017 4,142

Return on Invested Capital (ROIC):

NOPLAT 2,311 5,443 2,639 4,073 3,747 3,728 3,819 3,924 4,021 4,175 4,305 4,439 4,575
/ Beginning IC 12,526 12,103 12,633 12,752 11,241 11,584 11,914 12,263 12,630 13,008 13,408 13,818 14,240
ROIC 18.45% 44.97% 20.89% 31.94% 33.33% 32.18% 32.05% 32.00% 31.84% 32.10% 32.11% 32.12% 32.13%

Economic Profit (EP):

Beginning IC 12,526 12,103 12,633 12,752 11,241 11,584 11,914 12,263 12,630 13,008 13,408 13,818 14,240
x (ROIC - WACC) 12.15% 38.68% 14.59% 25.64% 27.03% 25.88% 25.76% 25.70% 25.54% 25.80% 25.82% 25.83% 25.83%
EP 1,522 4,681 1,843 3,270 3,039 2,998 3,069 3,152 3,226 3,356 3,461 3,569 3,679
Lockheed Martin Corporation
Weighted Average Cost of Capital (WACC) Estimation

Cost of Equity:
Risk-Free Rate 4.50%
Beta 0.524
Equity Risk Premium 4.23%
Cost of Equity 6.72%

Cost of Debt:
Risk-Free Rate 4.50%
Implied Default Premium 0.54%
Pre-Tax Cost of Debt 5.04%
Marginal Tax Rate 23.74%
After-Tax Cost of Debt 3.85%

Market Value of Common Equity: MV Weights

Total Shares Outstanding 240.00
Current Stock Price $450.40
MV of Equity 108,096.00 Billion 85.35%

Market Value of Debt:

Current Portion of LTD 168
Long-Term Debt 17,291
PV of Operating Leases 1102
MV of Total Debt 18,561.07 14.65%

Market Value of the Firm 126,657.07 100.00%

Estimated WACC 6.30%

Lockheed Martin Corporation
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs:
CV Growth of NOPLAT 4.25%
CV Year ROIC 32.13%
WACC 6.30%
Cost of Equity 6.72%

Fiscal Years Ending Dec. 31 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E

DCF Model:
Free Cash Flow (FCF) 5,583.3 3,403.5 3,398.4 3,468.8 3,557.1 3,643.2 3,775.4 3,894.8 4,016.9 4,141.9
Continuing Value (CV) 194,067.7
PV of FCF 5,252.6 3,012.3 2,829.6 2,717.1 2,621.3 2,525.7 2,462.3 2,389.8 2,318.7 112,023.1

Value of Operating Assets: 138,152.7

Non-Operating Adjustments:
+ Excess Cash 1,104.1
- PV of Operating Leases (1,102.1)
- Current Portion LT Debt (168.0)
- LT Debt (17,291.0)
- Pension Liabilities (6,162.0)
- ESOP (535.7)
Value of Equity 113,998.1
Shares Outstanding 240.0
Intrinsic Value of Last FYE $ 474.99
Implied Price as of Today $ 480.29

EP Model:
Economic Profit (EP) 3,269.7 3,038.9 2,998.4 3,068.5 3,151.7 3,226.0 3,356.3 3,461.3 3,568.8 3,678.9
Continuing Value (CV) 179,827.4
PV of EP 3,076.0 2,689.6 2,496.6 2,403.6 2,322.6 2,236.5 2,189.0 2,123.8 2,060.0 103,803.1

Total PV of EP 125,400.8
Invested Capital (last FYE) 12,751.9
Value of Operating Assets: 138,152.7
Non-Operating Adjustments:
+ Excess Cash 1,104.1
- PV of Operating Leases (1,102.1)
- Current Portion LT Debt (168.0)
- LT Debt (17,291.0)
- Pension Liabilities (6,162.0)
- ESOP (535.7)
Value of Equity 113,998.1
Shares Outstanding 240.0
Intrinsic Value of Last FYE $ 474.99
Implied Price as of Today $ 480.29
Lockheed Martin Corporation
Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E

EPS $ 28.93 $ 30.43 $ 31.20 $ 32.23 $ 33.60 $ 35.00 $ 36.70 $ 38.33 $ 40.11 $ 41.69

Key Assumptions
CV growth of EPS 1.00%
CV Year ROE 47.37%
Cost of Equity 6.72%

Future Cash Flows

P/E Multiple (CV Year) 17.12
EPS (CV Year) $ 41.69
Future Stock Price $ 713.97
Dividends Per Share 12.71 13.37 13.71 14.16 14.76 15.38 16.13 16.84 17.63
Discounted Cash Flows 11.91 11.74 11.28 10.92 10.67 10.41 10.23 10.01 9.82 397.74

Intrinsic Value as of Last FYE $ 494.73

Implied Price as of Today $ 500.25
Lockheed Martin Corporation
Relative Valuation Models

EPS EPS
Ticker Company Price 2024E 2025E P/E 24 P/E 25 Rev 23 (B) EV (B) EV/REV 2023
RTX RTX $96 $4.18 $4.98 22.98 19.29 68.92 170.80 2.48
BA Boeing $170 $3.09 $7.86 55.02 21.63 77.79 145.30 1.87
GD General Dynamics $278 $14.66 $16.41 18.99 16.96 42.27 87.80 2.08
TDG TransDigm Group $1,223 $27.13 $34.03 45.08 35.94 6.98 90.09 12.91
NOC Northrop Grumman $470 $24.70 $27.56 19.02 17.05 39.29 81.89 2.08
LHX L3Harris Technologies $211 $8.68 $10.77 24.32 19.60 19.42 53.42 2.75
TXT Textron $96 $5.71 $6.37 16.81 15.06 13.68 20.56 1.50
LDOS Leidos $129 $6.78 $7.56 19.08 17.11 15.44 21.88 1.42
*Gray cells are excluded Average* 20.20 17.51 2.05

LMT Lockheed Martin Corpo $450.40 $28.93 $30.43 15.6 14.8 67.57 126.30 1.87

Implied Relative Value:

P/E (EPS24) $ 584.31
P/E (EPS25) $ 532.90
EV/Rev 2023 $ 510.90
Lockheed Martin Corporation
Key Management Ratios

Fiscal Years Ending Dec. 31 2021 2022 2023 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E

Liquidity Ratios:
Current Ratio (Current Assets/Current Liabilities) 1.42 1.32 1.21 1.09 1.10 1.11 1.14 1.17 1.21 1.25 1.31 1.35 1.41
Quick Ratio (Current Assets - Inventory/Current Liabilities) 1.20 1.13 1.03 0.91 0.92 0.94 0.96 0.99 1.03 1.07 1.12 1.17 1.23
Cash Ratio (Cash & Equivalents/Current Liabilities) 0.26 0.16 0.09 0.07 0.11 0.15 0.16 0.18 0.20 0.25 0.29 0.36 0.43

Asset-Management Ratios:
Inventory Turnover (Cost of Sales/Avg. Inventory) 17.77 19.01 19.00 20.44 19.30 19.17 19.25 19.31 19.33 19.40 19.41 19.41 19.42
Total Asset Turnover (Sales/Avg. Assets) 1.32 1.27 1.28 1.48 1.47 1.44 1.43 1.43 1.43 1.43 1.41 1.39 1.37
NWC Turnover Ratio (Sales/Current Assets-Current Liabilities) 11.52 12.93 18.85 43.50 39.28 33.30 27.66 22.79 18.77 15.63 13.11 11.10 9.50

Financial Leverage Ratios:

Debt Ratio (Long-Term Debt/Total Assets) 22.94% 29.18% 32.96% 30.97% 30.44% 29.93% 29.85% 29.57% 29.24% 28.54% 28.08% 27.08% 26.33%
Debt-to-Equity Ratio (Total Debt/Total Equity) 1.18 1.80 2.72 2.68 2.51 2.35 2.06 1.82 1.61 1.45 1.28 1.20 1.09
Interest Coverage Ratio (EBIT/Interest Charges) 16.03 13.40 9.29 11.17 11.87 11.47 11.10 11.45 11.69 12.06 12.05 12.46 12.07

Profitability Ratios:
Return on Equity (NI/Beg TSE) 104.99% 52.30% 74.68% 99.95% 104.81% 94.55% 85.53% 77.56% 70.03% 63.62% 57.56% 52.32% 47.37%
Return on Assets (NI/Total Assets) 12.41% 10.84% 13.19% 12.66% 12.60% 12.29% 12.25% 12.23% 12.19% 12.07% 12.00% 11.72% 11.48%
Gross Margin (Sales-Cost of Sales/Sales) 13.52% 12.56% 12.55% 12.44% 12.39% 12.37% 12.35% 12.33% 12.31% 12.28% 12.26% 12.24% 12.23%
Profit Margin (NI/Sales) 9.42% 8.69% 10.24% 8.69% 8.70% 8.66% 8.62% 8.63% 8.63% 8.64% 8.62% 8.63% 8.60%

Payout Policy Ratios:

Dividend Payout Ratio (Dividend/EPS) 46.39% 52.44% 43.94% 43.94% 43.94% 43.94% 43.94% 43.94% 43.94% 43.94% 43.94% 43.94% 43.94%
Total Payout Ratio ((Divs. + Repurchases)/NI) 111.27% 190.44% 130.87% 102.49% 89.47% 87.56% 85.15% 82.89% 80.78% 78.59% 76.58% 74.60% 72.63%
Retention Ratio (EPS-Expected Dividends per Share/EPS) 53.61% 47.56% 56.06% 56.06% 56.06% 56.06% 56.06% 56.06% 56.06% 56.06% 56.06% 56.06% 56.06%
Lockheed Martin Corporation
Present Value of Operating Lease Obligations

Fiscal Years Ending Dec. 31 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Year 1 314 300 264 229 227 228 205 179 162 305 280 325 327 339
Year 2 267 233 200 161 166 181 161 150 154 184 190 225 226 223
Year 3 227 183 139 118 132 133 128 131 116 147 154 196 178 172
Year 4 166 142 97 91 96 95 101 103 82 114 119 151 131 136
Year 5 130 117 71 60 69 69 64 78 54 88 98 108 101 109
Thereafter 355 324 246 200 224 150 134 121 55 459 446 561 379 327
Total Minimum Payments 1,459 1,299 1,017 859 914 856 793 762 623 1,297 1,287 1,566 1,342 1,306
Less: Cumulative Interest 231 205 157 131 143 120 111 108 79 242 236 297 222 204
PV of Minimum Payments 1,228 1,094 860 728 771 736 682 654 544 1,055 1,051 1,269 1,120 1,102

Implied Interest in Year 1 Payment 61.9 55.2 43.4 36.7 38.9 37.1 34.4 33.0 27.5 53.2 53.0 64.0 56.5

Pre-Tax Cost of Debt 5.04% 5.04% 5.04% 5.04% 5.04% 5.04% 5.04% 5.04% 5.04% 5.04% 5.04% 5.04% 5.04% 5.04%
Years Implied by Year 6 Payment 2.7 2.8 3.5 3.3 3.2 2.2 2.1 1.6 1.0 5.2 4.6 5.2 3.8 3.0
Expected Obligation in Year 6 & Beyond 130 117 71 60 69 69 64 78 54 88 98 108 101 109

Present Value of Lease Payments

PV of Year 1 299 286 251 218 216 217 195 170 154 290 267 309 311 323
PV of Year 2 242 211 181 146 150 164 146 136 140 167 172 204 205 202
PV of Year 3 196 158 120 102 114 115 110 113 100 127 133 169 154 148
PV of Year 4 136 117 80 75 79 78 83 85 67 94 98 124 108 112
PV of Year 5 102 91 56 47 54 54 50 61 42 69 77 84 79 85
PV of 6 & beyond 253 231 173 141 158 109 97 89 41 309 305 378 264 232
Capitalized PV of Payments 1,228 1,094 860 728 771 736 682 654 544 1,055 1,051 1,269 1,120 1,102
Lockheed Martin Corporation
Effects of ESOP Exercise and Share Repurchases

Number of Options Outstanding (shares): 1.222

Average Time to Maturity (years): 0.00
Expected Annual Number of Options Exercised: 1.222

Current Average ESOP Strike Price: $ 0.00

Cost of Equity: 6.72%
Current Stock Price: $450.40

Fiscal Years Ending Dec. 31 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E
Increase in Shares Outstanding: 1.22 1.22 1.22 1.22 1.22 1.22 1.22 1.22 1.22 1.22
Average Strike Price: $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Increase in Common Stock Account: 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Share Repurchases ($) 4,000 3,180 3,052 2,915 2,816 2,723 2,640 2,557 2,477 2,378
Expected Price of Repurchased Shares: $450.40 $ 468.50 $ 487.33 $ 506.92 $ 527.29 $ 548.48 $ 570.52 $ 593.45 $ 617.30 $ 642.11
Number of Shares Repurchased: 8.88 6.79 6.26 5.75 5.34 4.96 4.63 4.31 4.01 3.70

Shares Outstanding (beginning of the year) 240 232 227 222 217 213 209 206 203 200
Plus: Shares Issued Through ESOP 1.22 1.22 1.22 1.22 1.22 1.22 1.22 1.22 1.22 1.22
Less: Shares Repurchased in Treasury 8.88 6.79 6.26 5.75 5.34 4.96 4.63 4.31 4.01 3.70
Shares Outstanding (end of the year) 232.34 226.78 221.73 217.21 213.09 209.34 205.94 202.85 200.06 197.58
Lockheed Martin Corporation
Valuation of Options Granted under ESOP

Current Stock Price $450.40

Risk Free Rate 4.50%
Current Dividend Yield 2.70%
Annualized St. Dev. of Stock Returns 14.50%

Average Average B-S Value

Range of Number Exercise Remaining Option of Options
Outstanding Options of Shares Price Life (yrs) Price Granted
RSUs 0.922 0.00 1.00 $ 438.41 $ 404
Performance Shares 0.300 0.00 1.00 $ 438.41 $ 132
Range 3
Range 4
Range 5
Range 6 $ -
Range 7 $ -
Range 8 $ -
Range 9 $ -
Total 1 $ 0.00 1.00 $ 450.40 $ 536
Lockheed Martin Corporation
Sensitivity Tables

Beta CV Growth of NOPLAT

480.29 0.367 0.419 0.472 0.524 0.576 0.629 0.681 480.29 3.95% 4.05% 4.15% 4.25% 4.35% 4.45% 4.55%
3.93% 747.62 654.51 580.23 519.58 469.13 426.49 389.98 6.00% 499.05 522.37 548.22 577.03 609.35 645.84 687.38
Equity Risk Premium

4.03% 729.35 638.07 565.29 505.89 456.49 414.76 379.03 6.10% 471.84 492.73 515.76 541.30 569.75 601.67 637.72
4.13% 711.86 622.34 551.00 492.80 444.42 403.55 368.58 6.20% 447.04 465.84 486.47 509.23 534.45 562.56 594.08

WACC
4.23% 695.12 607.29 537.33 480.29 432.88 392.84 358.59 6.30% 424.36 441.34 459.91 480.29 502.76 527.67 555.44
4.33% 679.07 592.87 524.25 468.31 421.83 382.60 349.03 6.40% 403.53 418.93 435.70 454.04 474.17 496.37 520.98
4.43% 663.67 579.04 511.70 456.83 411.25 372.78 339.88 6.50% 384.33 398.35 413.56 430.13 448.24 468.13 490.05
4.53% 648.88 565.77 499.66 445.82 401.10 363.37 331.11 6.60% 366.58 379.38 393.23 408.25 424.62 442.51 462.15

Marginal Tax Rate Product Costs as % of Product Sales

480.29 20.74% 21.74% 22.74% 23.74% 24.74% 25.74% 26.74% 480.29 -88.44% -89.44% -90.44% -91.44% -92.44% -93.44% -94.44%
4.20% 605.30 590.44 575.47 560.38 545.16 529.81 514.34 -85.33% 796.93 709.04 621.16 533.27 445.38 357.49 269.61

Service Costs as %
of Service Sales
4.30% 574.54 560.22 545.79 531.26 516.60 501.83 486.95 -86.33% 779.27 691.38 603.50 515.61 427.72 339.83 251.95
Risk-Free Rate

4.40% 546.42 532.61 518.69 504.67 490.54 476.31 461.97 -87.33% 761.61 673.72 585.84 497.95 410.06 322.17 234.29
4.50% 520.62 507.27 493.83 480.29 466.65 452.92 439.08 -88.33% 743.95 656.06 568.18 480.29 392.40 304.51 216.63
4.60% 496.86 483.95 470.95 457.86 444.68 431.41 418.05 -89.33% 726.29 638.40 550.52 462.63 374.74 286.85 198.97
4.70% 474.91 462.40 449.82 437.15 424.40 411.57 398.65 -90.33% 708.63 620.74 532.86 444.97 357.08 269.19 181.31
4.80% 454.56 442.44 430.25 417.98 405.63 393.20 380.69 -91.33% 690.97 603.08 515.19 427.31 339.42 251.53 163.65

Pre-Tax Cost of Debt

480.29 4.74% 4.84% 4.94% 5.04% 5.14% 5.24% 5.34%
6.42% 572.10 568.14 564.23 560.38 556.57 552.80 549.09
6.52% 541.91 538.31 534.76 531.26 527.79 524.37 520.98
Cost of Equity

6.62% 514.38 511.10 507.87 504.67 501.50 498.37 495.28

6.72% 489.18 486.19 483.22 480.29 477.39 474.52 471.68
6.82% 466.03 463.28 460.55 457.86 455.19 452.55 449.94
6.92% 444.69 442.15 439.64 437.15 434.69 432.25 429.84
7.02% 424.94 422.60 420.28 417.98 415.70 413.44 411.21