Tuesday, October 11, 2011

A First Look at Lockheed Martin (LMT)

A Seeking Alfa contributor said that Lockheed Martin (LMT) was one of 17 stocks that could double its dividend payments.  It sounded like a recommendation to buy to me.  So I became curious about Lockheed’s rise to almost becoming a high dividend stock yielding above 6%.

http://seekingalpha.com/article/298185-17-high-dividend-stocks-that-can-afford-to-double-dividend-payments

I used to work for Lockheed Martin.  The stock was near $52.00 per share when I started working there in 2004.  When I left in 2007 the stock price was hovering around $111.00.  The stock has fallen to $75 since that time.  I think it will fall still lower with government budget cuts that will not go away due to over promises on welfare and warfare.

Image003

Lockheed Martin (LMT)

Market price: $76.32

Shares outstanding: 335.62 million shares

Market capitalization: $25.61 billion

Image007

Lockheed’s stock fell to $53.10 at the bottom in March 2009.  LMT stock traded at 6.2 times average adjusted earnings at the bottom.  I think the coming worldwide recession will give you an opportunity to buy LMT much lower than it is today due to government budget cuts.

Dividend record:  LMT is a steady dividend payer and grower as you can see in the last five years of dividend payment history below.

Image008

Dividend: $1.00 per share (quarterly) starting at next dividend payment

http://www.reuters.com/finance/stocks/LMT/key-developments/article/2404076

Dividend yield: 5.2%  [$4.00 (annual)/$76.32 share price]

Dividend payout ratio: 53.2%  [$4.00 dividend/$7.51 estimated 2011 EPS]

Earning power: $8.57 per share @ 335.62 million shares

(Earnings adjusted for changes in capitalization; LMT has been buying back shares)

            EPS                 Net inc.          Adj EPS          Shares

2006    $5.80               $2,529 M        $7.54               436 M

2007    $7.10               $3,033 M        $9.04               427 M

2008    $7.86               $3,217 M        $9.59               410 M

2009    $7.78               $3,024 M        $9.01               389 M

2010    $7.94               $2,926 M        $8.72               368 M

2011E  $7.51               $2,521 M        $7.51               335.62 M

Six year average EPS = $8.57

Consider CONTRARIAN buying below $68.56 (8x average adjusted EPS)

Consider VALUE buying below $102.84 (12x average adjusted EPS)

Consider INVESTMENT buying between $102.84 and $171.40 (8x -12x average adjusted EPS)

Consider SPECULATIVE selling above $171.40 (20x average adjusted EPS)

Balance sheet: I don’t like the huge run-up in liabilities and the corresponding reduction in shareholder equity (this should be investigated).

Image011

Book value per share: $9.24 (TTM)

Price to BV ratio: 8.25 (not good)

Current Ratio: 1.15 (> 2.0 is good)

Quick Ratio: 0.76 (> 1.0 is good)

Financial Leverage: 10.86 (most recent quarter; not good)

Conclusion: Lockheed Martin pays a moderate dividend that is fairly safe right now.  It would be tempting to buy below $68.56 per share, but beware of the impact of government budget cuts.  I think that $8.57 average adjusted earnings will continue to fall as the government budget cuts grow.  Lockheed’s balance sheet is weak.  This would scary me away from the stock until I could figure out why the liabilities skyrocketed in 2008.  There has been no visible improvement in the balance sheet yet.

Disclosure: I don’t own LMT.

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

No comments:

Post a Comment