Lockheed Martin Corp. LMT recently revealed that it has completed testing for its LM 400 space vehicle and is progressing toward its imminent launch. With the company steadily investing in its technology demonstrations, this space vehicle is expected to embark on its journey in the first half of 2025. 

Impressively, LM 400 offers greater propulsion and better low-earth orbit (LEO), medium-earth orbit (MEO) and geosynchronous equatorial orbit (GEO) operability than others in its class. 

The recent news reflecting LMT’s progress in LM 400’s upcoming launch might lure investors interested in space stocks to add this defense contractor to their portfolio. However, before making any hasty decision, let’s delve into the company’s year-to-date performance, growth prospects as well as risks (if any) to investing in the same.

LMT Stock Outperforms Industry & Sector

Shares of Lockheed have surged 15% in the year-to-date period, outperforming the Zacks aerospace-defense industry’s decline of 9%. It has also outpaced the broader Zacks Aerospace sector’s growth of 0.4%. 

A similar trend can be seen in the performance of other industry players, Embraer ERJ, Leidos Holdings LDOS and RTX Corp. RTX, which have witnessed a surge of 116.8%, 53.4% and 43.3%, respectively, year to date.

LMT’s YTD Performance

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What is Driving LMT Stock Up?

Solid order flow for its varied products — ranging from agile fighter aircraft and helicopters to littoral combat ships and space products — from the Pentagon as well as the U.S. allies has always played the role of a key catalyst in Lockheed’s growth story. Such order flows culminate into a strong backlog count for the company, thereby bolstering its revenue prospects. This, in turn, might have been reflected in the company's recent share price hike. Notably, Lockheed’s backlog as of Sept. 30, 2024, totaled $165.69 billion, reflecting an increase from the previous quarter’s level of $158.34 billion.

The company’s stable financial position must have also been attracting investors. Notably, Lockheed’s cash and cash equivalents at the end of the third quarter of 2024 totaled $3.15 billion, while its current debt was $0.14 billion.  So, it would be safe to conclude that the stock holds a strong solvency position, at least in the near term.

Will LMT Continue With Its Winning Streak?

The growth prospects of defense contractors like Lockheed remain immense amid the growing extremity and complexity of the global security scenario. As unrest and hostility increase across the globe, nations, both developed as well as developing, are rapidly expanding their investments in defense arsenals, which, in turn, has been bolstering revenue and earnings generation opportunities for LMT. 
In line with this, the consensus estimate for LMT’s long-term (three-to-five years) earnings growth is pegged at a solid 4.5%.

However, a quick sneak peek at its near-term earnings and sales estimates mirrors a different growth story.

LMT’s Estimates Send Mixed Impulse

The Zacks Consensus Estimate for 2024 and 2025 sales reflects an improvement of 5.4% and 4%, respectively, year over year. LMT’s 2024 earnings estimate indicates a year-over-year deterioration, while that for 2025 implies an improvement.

However, the Zacks Consensus Estimate for the fourth quarter of 2024 and the first quarter of 2025 earnings per share suggests a downward movement of 1.9% and 1.3%, respectively, over the past 60 days. This indicates analysts’ declining confidence in the stock.

Image Source: Zacks Investment Research

Image Source: Zacks Investment Research

Headwinds to Consider Before Choosing LMT

Despite being a prominent defense contractor, Lockheed faces some notable industry challenges and one should consider them before adding this stock to his/her portfolio.  One such challenge is the shortage of skilled labor, which, along with an aging workforce, has become a major cause of concern for aerospace manufacturers like LMT. As aircraft manufacturers have started increasing their production rates, labor shortages might affect aerospace stocks like Lockheed. 

Moreover, the company has a contract with the Canadian Government for the Canadian Maritime Helicopter Program (“CMHP”) under its Rotary and Missions Systems business segment to provide for the design, development and production of CH-148 aircraft, and offer logistical support to the fleet. This program experienced performance issues, including delays in the final aircraft deliveries from the original contract requirement. 

The Royal Canadian Air Force’s flight hours have been significantly less than originally anticipated. This has affected program revenues and the recovery of Lockheed’s costs under this program. As of Sept. 30, 2024, the company’s cumulative losses in relation to CMHP were approximately $100 million.

LMT Stock Trading at a Premium

In terms of valuation, LMT’s forward 12-month price-to-earnings (P/E) is 18.53X, a premium to its peer group’s average of 17.23X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers. The stock’s forward P/E ratio also looks stretched when compared to its five-year median value.

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Should You Buy LMT Now?

Investors interested in Lockheed should wait for a better entry point, considering its premium valuation and near-term estimates suggesting a dismal performance. 

However, those who already own this Zacks Rank #3 (Hold) company’s shares may stay invested as its financial stability, solid year-to-date performance and solid backlog count offer solid growth prospects in the long run. Its proven prowess in space vehicle manufacturing, further bolstered by the recent LM 400 news, should also encourage investors to keep this stock in their portfolio. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report

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