Summary
- Lockheed Martin's undervaluation has expanded rapidly for the past month or so. As I'm writing this article, the company broke below $330/share and over 3.14% yield.
- My YoC is 2.99%, and I'm expanding my position, increasing this higher and higher.
- At current valuations, I consider LMT to be about 12% undervalued and possibly the best defense major on sale today.
- The company is a "BUY".
Lockheed Martin (NYSE:LMT) continues to move down despite reporting some record-breaking 4Q20 results yesterday. The saying "don't look a gift horse in the mouth" is one that's not really valid as an investor - we should always look at every investment that continues to drop despite good results.
However, in the case of LMT, I do believe that the market is short-sighted and even foolish here.
Let me show you why.
How has the company been doing?
In my previous article, I was happy to invest in LMT at 5% undervaluation. I was amazed to be able to pick up the company at a great price. However, since that article, the valuation has improved step by step. It brings me great pleasure to be able to say that we're now able to invest in LMT at a near-record low valuation outside of the pandemic for some time. This despite some truly excellent results.
4Q20 was a great quarter for LMT, aside from a small earnings miss. Despite the miss, the company achieved record sales, record operating profit, and record EPS from continuing operations. Record cash from operations was generated, and LMT paid back nearly $4B to shareholders while continuing to invest in the business.
The company's backlog is now close to $150B.
(Source: LMT 4Q20 Presentation)
Segment-by-segment results were equally positive, with every segment showing positive results in near double digits or double digits apart from Rotary/Mission systems (up 6% YoY). The company's backlog has increased by nearly 50% in less than five years, showcasing some excellent future years for the company as it rushes to fill these orders.
The company also provided a decent outlook with EPS increases for 2021.
(Source: LMT 4Q20 Presentation)
Unlike other companies in similar fields (Boeing (NYSE:BA)), LMT has no issues handling its pension obligations. The company's performance, especially considering the pandemic, has been small enough to call the year an "outstanding" one for LMT, and the company views itself as well-positioned for 2021 growth.
The company's fundamentals remain rock-solid with A-grade credit, a market cap approaching $100B, and one of the most well-known names in the entire defense industry. The market soured a bit on the company on earnings day, mostly because of a very slight consensus miss, which is something I view as a godsend. On the days of earnings, as well as the days after earnings, I bought multiple shares of LMT, further lowering my cost basis and positioning myself for long-term potential high RoR.
