Lockheed Martin (LMT)

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Lockheed Martin Corporation is a security and aerospace company. It operates through four segments. The aeronautics segment is engaged in the research, design, development, manufacture, support, and upgrade of military aircraft, including combat and air mobility aircraft, unmanned air vehicles, and related technologies. Missiles and Fire Control segment provides air and missile defense systems; fire control systems; manned and unmanned ground vehicles, and energy management solutions. Rotary and Mission Systems segment provides design, manufacture, service, and support for various military and commercial helicopters, surface ships, sea, and land-based missile defense systems, radar systems, sea, and air-based mission and combat systems, command and control mission solutions, cyber solutions, and simulation and training solutions. The space segment is engaged in the research and development, design, engineering, and production of satellites, missile systems, and space transportation systems.

Lockheed Martin Monthly Chart

Noting key levels

  • When looking at the monthly chart it is important to remain discretionary, as in, using simplistic technical tools (supply/demand, and key points of interest).
  • On the above chart, we have 4 key levels defined.
    • $442.53 – set as the all-time highs.
    • $390 – set as the upper resistance boundary.
    • $320 – set as the relative lower boundary.
    • $240 – set as the lower boundary.
  • The reason we define these levels on a monthly is to coordinate key levels as we shorten the ‘time’ parameters. Moving forwards as we can see above the $320 level will play the role of the demand signal (where investors, historically, have defended the price).
  • Note the rising trendline (grey dotted) which correlated with the lows set in 2019 as well as 2020.
  • As the current price is defined under the 50d SMA we have one recent example of this signal (experienced at the start of 2021), where the price fell below the 50d SMA and rallied back through in the next month.

Lockheed Martin Daily Chart

What is the ‘trend’?

  • Looking at the last 2 years of daily price action we can make note of some significant measures related to price.
  • Note how, as defined when analyzing the monthly chart we mentioned the relevance of the “key levels”
    • Both the $320 and $390 have now been converted into visual supply and demand ranges.
  • A new tool we are presenting is the dashed purple line which represents a linear regression analysis.
    • We use this tool to help define whether the price over a given time period has trended positively or negatively.
    • As clearly defined above the last 24 months of price action has trended negatively irrespective of earnings or other secondary and tertiary factors.
  • With respect to the more relevant price action, the recent earnings have shown significant weakness in investor confidence.
    • Note the large rally from ($355.5 to $378.9) leading into the most recent earnings report.
    • Post-report we see a large spike in daily volume correlating with a large gap down in price.
    • We see an initial low set within our previously defined demand range (above $320) at $324.
    • As would be expected, we see the price react to our previously defined demand range with a moderate rally back into the initial gap down range (white dashed line $348.5).
    • Note how as price confirms resistance set at $348.5 LMT begins to trend lower once again, signaling investors are not certain price can close the above earnings gap.

Lockheed Martin Fundamental Overview (Annual)

  • Looking at the quick view investors should note a few significant changes in Lockheed Martin’s fundamental valuation.
  • First is the notable declines in both Return on Equity (ROE), as well as a significant decline in Financial Leverage (Assets/Equity).
  • While most other metrics are progressing normally we also see significant declines in growth rates; Investors should note significant losses in Revenue, Net Income, Earnings Per Share (EPS) as well as Dividends Per Share (DPS) relative to their 5-year averages.
  • The one positive metric for Lockheed Martin is the significant rise in Book Value Per Share, from a 5 year average of 16.098 to a current rate of 97.266.

What Changed?

  • Looking deeper into the Q3 filings, the company expected to see lower 2022 revenues as a result of declining government spending and purported secondary effects from the ongoing state of emergency.
  • The company however has returned value to investors from both dividends and share repurchase programs.
  • Also as a result of the crisis which began in early 2020, Lockheed Martin is reporting a heavy backlog of orders.

Summary

Overall Lockheed Martin has more than a few hurdles to jump through to return investor confidence and return their share price to what it was before the crisis of 2020. Investors should keep a keen eye on improving fundamentals moving forwards as Lockheed Martin attempts to fulfill the current backlog of orders and expand their operations into the hypersonics arena.

References

8/21/50/100/200dSMA: The Simple Moving Average is calculated by summing the closing prices of the security for a period of time and then dividing this total by the number of time periods. Sometimes called an arithmetic moving average, the SMA is basically the average stock price over time. As a trend develops, the moving average will slope in the direction of the trend, showing the trend direction and some indication of its strength based on the slope steepness.

Linear Regression: Linear regression analyzes two separate variables in order to define a single relationship. In chart analysis, this refers to the variables of price and time. Investors and traders who use charts recognize the ups and downs of price printed horizontally from day-to-day, minute-to-minute, or week-to-week, depending on the evaluated time frame.

Return on Equity: Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. Because shareholders’ equity is equal to a company’s assets minus its debt, ROE is considered the return on net assets. ROE is considered a gauge of a corporation’s profitability and how efficient it is in generating profits.

Financial Leverage: Leverage results from using borrowed capital as a funding source when investing to expand the firm’s asset base and generate returns on risk capital. Leverage is an investment strategy of using borrowed money—specifically, the use of various financial instruments or borrowed capital—to increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets.

Revenue: Revenue is the money generated from normal business operations, calculated as the average sales price times the number of units sold. It is the top line (or gross income) figure from which costs are subtracted to determine net income. Revenue is also known as sales on the income statement.

Net Income: Net income (NI), also called net earnings, is calculated as sales minus the cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses. It is a useful number for investors to assess how much revenue exceeds the expenses of an organization. This number appears on a company’s income statement and is also an indicator of a company’s profitability.

Earnings Per Share: Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability. It is common for a company to report EPS that is adjusted for extraordinary items and potential share dilution.

Dividend Per Share: Dividend per share (DPS) is the sum of declared dividends issued by a company for every ordinary share outstanding. The figure is calculated by dividing the total dividends paid out by a business, including interim dividends, over a period of time, usually a year, by the number of outstanding ordinary shares issued.

Book Value Per Share: Book value per share (BVPS) is the ratio of equity available to common shareholders divided by the number of outstanding shares. This figure represents the minimum value of a company’s equity and measures the book value of a firm on a per-share basis.

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DISCLAIMER

Our content is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis prior to making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our post(s) and wish to rely upon, whether for the purpose of making an investment decision or otherwise. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities. Past performance is no guarantee of future results. Any historical returns or expected returns are hypothetical in nature and may not reflect actual future performance. Account holdings are for illustrative purposes only and are not investment recommendations. Speak to a financial advisor before confirming any investment decisions.

About the author: Liam Hennessy

With 5 years of trading experience, Liam intends to share his insights and knowledge with anyone who seeks to learn more about trading and utilizing technical analysis to improve their market research capabilities.

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