Lockheed Martin beat on sales and earnings yesterday, and its stock zoomed higher.
Wall Street analysts lined up to raise price targets on Lockheed stock today.
Lockheed shares look cheap at 16.5x free cash flow.
Lockheed Martin (NYSE: LMT) had a terrific Q2, and reported powerful profits and sales in its Q2 earnings report yesterday — topping off the report with raised guidance.
Wall Street is applauding, with no fewer than five separate analysts raising price targets on Lockheed Martin stock today. Shares of the defense giant are up for a second day running in response, gaining 2.1% through 2:05 p.m. ET, and topping $580 a share.
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Lockheed grew sales by 11% in Q2 and profits by 444%. Free cash flow flipped from negative $150 million to positive $2.9 billion.
Commenting on the results, Swiss bank UBS highlights “strong demand” for Lockheed Martin’s products, paired with increasing production capacity geared to meet that demand — and grow sales and profits.
As you’d expect in an environment characterized by two “hot” wars going on simultaneously, sales of Lockheed’s in-demand Patriot missiles are helping to drive Missiles & Fire Control results. But Lockheed’s looking healthy in other areas as well. Each of Lockheed’s four main divisions showed sales growth in Q2, and all four earned profits.
UBS thinks Lockheed’s in the early innings of a growth spurt, and the numbers bear this out. Lockheed had a 3.2x book-to-bill ratio in Q2 — meaning it “booked” 3.2 times more orders than it “billed” by delivering on existing orders. This implies strong sales growth in Lockheed’s future, as newly booked orders ship, are billed, and become revenue.
Despite this evidence that a turnaround is afoot, though, UBS hesitates to recommend buying Lockheed — worried that midterm U.S. Congressional elections could endanger future defense budgets.
I admit that’s a risk. But with Lockheed stock trading for a cheap 16.5x free cash flow today, it’s a risk worth taking.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.
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