Lockheed Martin stock sits at ATH: still a good buy?

The Lockheed Martin (LMT) stock price has risen for six straight months, rising to a record high after the company published strong financial results. It soared to a high of $520, bringing its year-to-date gains to 13.6% and the 10-year performance to 206%.

Geopolitical tensions are rising

Lockheed Martin, the manufacturer of patriot missile systems and the F-35 plane has been in a steady growth in the past decades. 

This growth happened as geopolitical risks rose around the world, pushing governments to boost their spending. 

Tensions between the US and China have escalated in the past few years and the trend will likely continue over time no matter who wins the presidency. These tensions have been fueled by Washington lobbyists who have received huge sums of money from companies in the military-industrial complex. 

The same trend is happening in the Middle East, where Israel is fighting with Hamas in Gaza and the war could expand in Lebanon and the West Bank. In his speech to Congress on Wednesday, Netanyahu pointed the finger to Iran. 

Meanwhile, the war in Ukraine has continued and could expand no matter who wins in November this year. 

Therefore, all these risks have led to a windfall to companies that manufacture and sell military equipment. 

Lockheed Martin has benefited from the rising defense spending, as evidenced by its quarterly results. The company said that its revenues rose from $16.6 billion in the second quarter of 2023 to over $18.1 billion in Q3. 

As in the past, its aeronautics business was the main driver of this growth as its net sales rose to $7.2 billion in Q2. Its rotary and mission systems rose from $3.8 billion to $4.5 billion while the space division rose slightly to $3.19 billion. The only laggard was its rotary and mission systems whose revenue fell to $4.5 billion. 

These results were a continuation of what Lockheed Martin has done over time. Its annual revenue has jumped from $59 billion in 2019 to over $67 billion in 2023. Before that, its revenue was $47 billion in 2015. 

Therefore, we can assume that the company will continue seeing strong sales in the next decade. It has also continued growing its profits over time. Net profit moved from $3.6 billion in 2015 to over $6.9 billion in 2023.

Lockheed Martin boosts guidance

Meanwhile, Lockheed Martin expects that its business will continue doing well in the coming months as demand remains steady. Its guidance for this year is that its revenue will rise to between $70.5 billion and $71.5 billion. Its operating profit is expected to be between $7.35 billion and $7.5 billion, an increase from the previous guidance of $7.17 billion and $7.37 billion. 

These guidance numbers were higher than what analysts were expecting. The average estimate among 22 analysts is that Lockheed would generate $70.69 billion in annual revenue this year. 

Meanwhile, the company has continued to reward its shareholders through dividends and share buybacks. It returned $1.6 billion to investors in the first quarter by paying a dividend of $752 million and buying 1.6 million shares.

Over time, Lockheed has reduced its total outstanding shares to 238 million from over 250 million a few years ago. Share repurchases are positive because they help a company to improve its earnings per share over time, 

Lockheed had grown its dividends for over 21 years, meaning that it will be a future dividend aristocrat. It also has a low payout ratio of 44%, giving it room to continue growing its payouts to investors. 

Most notably, the company is cutting costs, making its profit margins higher than its peer companies like General Dynamics and RTX. This trend will continue since the supply chain issues are improving. The CEO said:

Lockheed Martin stock price analysis

LMT chart by TradingView

In my last article on LMT stock, I noted that it was ripe for a bullish breakout, citing the inverse head and shoulders pattern that was forming. That estimate was accurate as the stock pushed above the neckline at 491.05p this week.

The stock has remained above the 50-day and 100-day moving averages, meaning that bulls are in control. Also, the momentum indicator has continued rising, moving to its highest point in years. 

Oscillators like the Relative Strength Index (RSI) and the Stochastic Oscillator have continued rising. Therefore, the stock will likely do a break and retest pattern, where it drops to the key support at $491 and then resumes the bullish trend. In the longer term, the stock will likely rise to $600.