Summary
Defense company earnings multiples are high by historical standards, but these valuations could be the new normal.
The company had pension obligation problems in the 1st quarter, and this could linger throughout the rest of 2018.
The pension fund obligations are significant and over $5 billion in contributions expected this year alone.
Quick Synopsis
The defense industry has been in a cyclical upturn and this is the result of a focused effort to increase the defense budget to $665 billion annually. Lockheed Martin (LMT) remains the largest weapons manufacturer because of their operational excellence and consistent revenue/earnings expansion.
The major F-35 program has escaped the low rate initial production hell that was plagued by cost overruns, manufacturing delays and a steep learning curve. The company has finally started deliveries to strategic allies Korea, Israel and other NATO partners which participated in the development of the jet. This is strategically important to the company's business model as nearly 25% of revenues are sourced from sales of the jet.
