Lockheed Martin Corporation (LMT)

Conclusion

Lockheed Martin is a US aerospace and defense company that designs, manufactures and sustains combat aircraft, missiles, helicopters, ships, satellites and related systems through four segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space. At a price of 588.19 USD on 2026-11-09, its market capitalisation is 135.9 billion USD.

The verdict is fair. The fair value band runs from 518.22 to 777.33 USD with a midpoint of 647.78 USD, a margin of safety of 10.1% at today's price. Against their own ten-year medians, the P/E stands at 20.9 versus 18.6, a premium of 12.3%, while P/FCF is 16.2 versus 19.8, a discount of 18.2%, and EV/EBITDA is 14.4 versus 14.6, a discount of 1.9%. The DCF gives 694.89 USD per share at a discount rate of 8.87%. The reverse DCF implies growth of 3.17% a year, against revenue growth of 2.79% over five years and free cash flow per share growth of 5.47%.

The strongest numbers are ROIC of 30.2% against a WACC of 8.3%, free cash flow conversion of 128.7% over the last twelve months, and net debt to EBITDA of 1.39. The weakest are the EPS growth of -2.3% a year over five years, an average earnings surprise of -13.3% across the last eight quarters, and an operating margin of 11.8% against a ten-year median of 12.9%.

Financial health

Financial health is green, held up by all four scored measures: a current ratio of 1.26, net debt to EBITDA of 1.39, interest coverage of 8.06 and an Altman Z-score of 3.66, which sits in the safe zone. The Altman model was built for manufacturers, and the company's business is broadly manufacturing, so the reading is meaningful. The insolvency risk is low, about 2.3% by the estimate of the Ohlson model over one to two years, based on figures as of 2025-12-31. The quick ratio of 0.37 is low and debt to equity of 2.04 is high, so the balance sheet relies on operating cash flow and on the company's continuing access to funding, not on liquid assets. Interest coverage remains comfortable at current debt levels.

Earnings quality

Earnings quality is green. Free cash flow conversion is 128.7% over the last twelve months and 110.0% on a five-year basis, meaning cash generation has exceeded reported earnings. The accrual ratio of -6.1% points the same way. Stock-based compensation is 0.45% of revenue, and free cash flow after it is 8.02 billion USD. The share count has fallen at a compound rate of 3.8% a year over five years, which reflects buybacks. The Piotroski score is 6 out of 9. The Beneish M-score is not available. Earnings surprises are mixed, with 5 beats and 3 misses in the last eight quarters and an average surprise of -13.3%. Estimate revisions are positive: 16 current-year upgrades against 2 downgrades in the last 30 days, and 17 next-year upgrades against 1 downgrade.

Profitability

Profitability is yellow. The gross margin is 11.7% against a ten-year median of 12.7%, the operating margin 11.8% against 12.9%, and the net margin 8.2% against 9.4%. Operating margin stability is 10.9%. The main support is returns on capital: ROIC of 30.2% against a WACC of 8.3% gives a ROIC minus WACC value of 21.9%, and the five-year median ROIC is 27.8%. Return on equity is 64.7%, but the DuPont split shows that leverage inflates it: an equity multiplier of 8.90 sits alongside an asset turnover of 1.25 and a net margin of 6.7% for 2025. The return is driven by a thin margin and a large balance sheet multiplier, not by pricing power.

Growth

Growth is yellow. Revenue grew at a compound rate of 4.4% over three years, 2.8% over five years and 6.4% over ten years, and it rose in 9 of the last 10 years. EPS is weaker: a compound rate of 0.0% over three years, -2.3% over five years and 6.6% over ten years. Free cash flow per share grew at 8.7% over three years, 5.5% over five years and 8.5% over ten years, so cash growth has outpaced earnings growth recently. Analysts expect next-year EPS to grow by 8.45%. The gap between recent five-year EPS decline and that forecast is the main test of the growth case.

Valuation

Valuation is yellow, with a neutral reading on the fair value verdict. The verdict is fair, with a margin of safety of 10.1% at a price of 588.19 USD. Versus ten-year medians, the P/E is 20.9 against 18.6 (a premium of 12.3%), the price to book is 13.5 against 17.3 (a discount of 21.9%), and the price to sales is 1.7 against 1.6 (a premium of 4.4%). The fair value from historical multiples is 600.67 USD. The DCF gives 694.89 USD per share at a discount rate of 8.87% and a terminal growth rate of 2.5%, with the terminal value making up 57.0% of the total. The fair value is an order-of-magnitude estimate built on fixed assumptions, not a price target. The reverse DCF implies 3.17% growth, against 2.79% revenue growth and 5.47% free cash flow per share growth over five years. The dividend yield is 2.36% and the payout on free cash flow is 38.3%.

Risks

A fall in ROIC toward the cost of capital would remove most of the value case, since the spread is currently 21.9 points. Continued EPS decline, which was -2.3% a year over five years, would weaken the case that the price is supported by earnings. The average earnings surprise of -13.3% and the operating margin below its ten-year median both point to pressure on profit delivery. Leverage, with debt to equity at 2.04 and a quick ratio of 0.37, would become a concern if cash flow weakened. The Beneish M-score is not available. This analysis has no debt maturity schedule and no revenue by segment, so refinancing risk and the contribution of each division cannot be assessed.