2022-07-26_LMT-MC-ValuationReport_Draft02.pdf

1 of 21 | © BEHARRY, LYNDON MARTIN W. | 2022-07-26_LMT-MC-ValuationReport_Draft02 | 7/27/2022 2:24 PM
Lockheed Martin Corporation
Your Mission Is Ours
The March 1995 merger of two leading U.S. defense industry contractors: Martin
Marietta (then 3rd position by revenue) and Lockheed Corporation (then 2nd
position by revenue) formed Lockheed Martin Corporation. Headquartered near
Washington, DC in North Bethesda, Maryland, the firm boasts over 115 thousand
employees worldwide, including about 60 thousand engineers and scientists.
Lockheed's superior aeronautical innovations include: the Vega (1928); Electra
(1930s); Constellation (WWII); C-130 Hercules (1956 and ongoing); SR-71
Blackbird (1966); F-117 Nighthawk (1983); F-35 Lightning II (2006); and many
others. Martin Marietta created the Vanguard rocket (1957), the first U.S.
dedicated satellite booster vehicle, and the Titan I (1959) and Titan II (1962)
ICBMs. Martin further developed the Titan concept as the strongest booster
rockets for larger/heavier satellites and for space exploration: Titan III (1964) and
Titan IV (1990).
From 1943, Lockheed chartered its Advanced Development Division aka "Skunk
Works" which has earned an extraordinary record of quality and turn-around
time for wholly original concepts. Skunk Works produced the U-2 spy plane, SR-
71, F-117, and other craft of significance to national security and aeronautical
engineering.
The firm's 2015 acquisition of Sikorsky aircraft for $9 Billion enhanced Lockheed
Martin's core competency in defense aircraft while its availability to commercial
sales. Sikorsky enjoys worldwide brand equity of a level similar in quality and
breadth with Lockheed Martin.
Lockheed Martin also maintains a leading role in spacecraft design and
implementation. Partnership with Amazon, Cisco and other corporations brings
the Company’s technology to commercial space assets.
Key Financials
1,000,000 $USD (Except Per Share) 2018 2019 2020 2021
Net Sales 53,762 59,812 65,398 67,044
% Change 5.32% 11.25% 9.34% 2.52%
Net profit 5,046 6,230 6,833 6,315
% Change 152.05% 23.46% 9.68% -7.58%
Depreciation / Amortization 1,161 1,189 1,290 1,364
EBIT Margin 6,506 7,894 8,826 8,119
EBIT Margin % Revenue 12.10% 13.20% 13.50% 12.11%
EBITDA Margin 7,667 9,083 10,116 9,483
EBITDA Margin % Revenue 14.26% 15.19% 15.47% 14.14%
interest Expense 668 653 591 569
Interest % Revenue 1.24% 1.09% 0.90% 0.85%
Times Interest Earned (EBIT:Interest) 9.74 12.09 14.93 14.27
Shares Outstanding 281 280 281 277
EPS 17.96 22.25 24.30 22.76
Book Value Per Share (Dilution Adj) -45.60 -38.02 -27.67 -9.23
RoE 348.24% 196.47% 113.17% 57.62%
RoA 11.24% 13.11% 13.47% 12.41%
Quick Take
Buy/Hold | $USD 2022-July-26
Current Market Price 397.01
Target Price 450.00
Dividend | Yield 11.20 | 2.85%
Growth Expectation Inflation +100bp
Investment Period Long-term: Years
STOCK INFO $USD 2022-06-30
Sector SIC 3812: Aeronautics
Market Cap1
106 Billion
Total Debt (12/2021) 11.64 Billion
Beta2
0.73
52 Wk High | Low 479.99 | 324.23
Avg Daily Volume 1.46 Million Shares
Book Value (per share) 43.30
Ticker NYSE: LMT
IRS EIN 52-1893632
INSTITUTION INVESTORS: @ 2021/12/30
State Street ≈ 14.86 %
Vanguard ≈ 7.82 %
Blackrock ≈ 6.59 %
Capital World Investors ≈ 5.05 %
OTHERS IN THE MARKET:
Free Float ≈ 232.47 Million | 87.22%
INDEX Trend: NYSE 2019 2020 2021
CAGR (2000-Year) 3.707% 3.803% 4.412%
Y-o-Y Growth 10.69% 5.75% 15.12%
10-Yr Chart : LMT S&P 500
The Interval: Q3 2012 - Q2 2022. Lockheed Martin (Blue) has
outpaced the S&P 500 (Pink) by 355% to 192%.
1 The analyst adjusted capitalization to account for Treasury Stock.
2 Yahoo! Finance Statistics at 2022-07-27.

2022-07-26_LMT-MC-ValuationReport_Draft02 | Page 2 of 21
2 of 21 |© BEHARRY, LYNDON MARTIN W. | 2022-07-26_LMT-MC-ValuationReport_Draft02 | 7/27/2022 2:24 PM
CORPORATE OVERVIEW: THE HISTORICAL RECORD
The world's largest defense contractor (by revenue), Lockheed
Martin Corporation enjoys a storied history dating back to the
earliest days of powered flight. In those pioneering years, Glenn
Luther Martin founded the Glenn L. Martin Company in 1912 Los
Angeles; and Allan Loughead (pronounced Lockheed) and John
Northrup formed Lockheed Aircraft Company in 1926 Hollywood
with partners Kenneth Kay and Fred Keeler. By April 1929, the
Lockheed's 300 workers were building five aircraft each week. Allan
Loughead resigned in August 1929 protesting Fred Keeler’s sale of
87% of the company’s equity to Detroit Aircraft Corporation. After
the autumn 1929 onslaught of the Great Depression, economic
chaos first decimated the U.S. economy and then assailed the
European economies. While the Detroit Aircraft Corporation folded,
Martin weathered the Depression supplying dive bombers on
military contracts.
Along with partner Walter Varney, the Gross Brothers (Robert and
Courtland) brought Detroit Aircraft out of receivership in 1932. They
renamed it: Lockheed Aircraft Corporation. This iteration of
Lockheed produced the Vega (favored by Amelia Earhart and other
aviators), and then the Model 10 Electra. The Lockheed Model 12
Electra Junior and the Lockheed Model 14 Super Electra followed.
Before and during WWII, the British RAF and the U.S. military flew
the Hudson bomber based on the Model 14.
Lockheed and Martin both supplied fighter craft and bombers to
support the U.S. war effort. Martin’s most notable wartime product
was the B-26 Marauder, a medium fighter-bomber.
“By 1945, when production ended, 5,266 Marauders had
been built, with U.S., British, Free French, Australian,
South African and Canadian aircrews all having flown the
B-26 in combat.”i
The P-38 Lightning emerged as Lockheed’s most notable WWII
design. Early on, Clarence “Kelly” Johnson, one of the all-time great
aircraft engineers, submitted the P-38 Lightning fighter aircraft to a
U.S. Army Air Corps call for an interceptor. Johnson devised this
nimble aircraft as a twin-engine, twin-boom design. The P-38 was
the only American fighter aircraft in production through the entirety
of America’s involvement in the war. It flew missions from Pearl
Harbor to Victory over Japan Day.
By the end of this world-wide conflagration, Lockheed ranked tenth
among U.S. corporations in production value. Lockheed and its Vega
subsidiary had produced 19,278 aircraft, representing six percent of
war production: 2,600 Venturas, 2,750 Boeing B-17 Flying Fortress
bombers (under Boeing license), 2,900 Hudson bombers, and 9,000
Lightnings. Martin ranked fourteenth among U.S. materiel
contractors in the value of wartime production. Notably, Martin
manufactured both the Enola Gay and Bockscar, the two B-29s
responsible for dropping the atomic weapons upon Hiroshima and
Nagasaki, respectively.
During the war, Lockheed and TWA jointly developed the L-049
Constellation. First introduced as the C-69 WWII military transport,
this vehicle ultimately transformed the civilian transport market
after the war. It is abundantly clear that U.S. military aviation
contracts funded the advances which directly led to ubiquitous
civilian air travel and the abundant and low-cost transit
opportunities of our 21st
century civilization.
The immediate aftermath of WWII saw the U.S.
economy rapidly transition to civilian production, but
with renewed vitality and optimism brought about by
America’s overarching victory highlighted also with a
production infrastructure wholly intact and free of the
ravages and devastation of world war. The U.S., the
U.K., and France were quick to adapt military aviation
discoveries toward civilian air travel. In addition, the
U.S. recruited German scientists and engineers with
former ties to the German Nazi party to buttress U.S.
design and manufacture in aviation, avionics, and
aeronautics.
And as the Soviet Union absorbed Eastern European
nation-states to serve as a buffer zone between it and
the West, the U.S. government called upon Lockheed
and Martin Marietta to develop the first generation of
jet fighters, bombers, and missiles; particularly
bombers and missiles capable of hauling
thermonuclear weapons over and across the arctic to
kill Soviet missiles and aircraft on the ground. The U.S.
government also contracted for aircraft capable of
stealth to spy on enemy positions and navigate safely
back home. Finally, the U.S. demanded technology to
launch missiles based within nuclear submarines,
stealthily patrolling throughout the world’s oceans.
From the 1950s and through the 2000s, Martin
Marietta developed scores of ICBM models (Atlas,
Peacekeeper, Titan, etc.), medium range missiles
(Javelin, Midgetman, Pershing, etc.); and spacecraft
(Magellan, Viking, Mars Polar Lander, etc.) to carry
scientific instruments into space to investigate the far
reaches of our solar system.
And Lockheed? Lockheed came up with…
Skunk Works
Starting in 1943, Kelly Johnson spearheaded the
creation of Lockheed's Skunk Works division. Skunk
Works' P-80 Shooting Star became the first American
jet fighter to score a kill, recording the first jet-to-jet
aerial dispatch, downing a Mikoyan-Gurevich MiG-15
in Korea. Skunk Works went on to produce the U-2
Dragon Lady (1953), the A12 (1962) and SR-71
Blackbird (1966), and the F-117 Nighthawk (1978).
Lockheed's other notable aeronautics innovations
include: C-130 Hercules, the Poseidon and Trident
nuclear missiles, and the C-141 Starlifter jet transport.
Its post-1990s contributions to aviation and defense
include its 5th
Generation fighters: F-16 Fighting Falcon
(1995-present), F-35 Lightning II (2015-present), and F-
22 Raptor (1997-present).

PESTLE: CHARACTERISTICS
Economic
 In 2021, the firm derived 71% of its total consolidated net sales from
the U.S. Government; 62% from the DoD;
 U.S. Congress allocates Defense budget spending on a FY basis, but
contracts extend out for years and potentially decades. Because of
this, contracts are initially only partly funded with additional financial
commitments provided over time. Negative economic cycles may
impact future funding for committed projects resulting in substantial
lost sunk costs;
 Budget uncertainty, budget cuts, government shut-downs, and the
federal debt ceiling may adversely affect the Company;
 Negative performance of F-35 Lightning II program would severely
impact the Company’s financial performance. The F-35 represents
27% of the Company consolidated 2021 net sales;
 Lockheed Martin gains revenue from U.S. defense partners and
friendly nation-states. Any change in U.S. behavior or recognition of
its defense partners and/or trading partners could affect the
Company’s financial performance;
 The U.S. Government may terminate any of its contracts for
convenience or default. While the Company may recover sunk costs
and associated profits for convenience-based cancelations; default-
based cancelations are more problematic and may block the
Company from cost recovery and also block its ability to compete for
additional or potential contracts for similar work or product(s);
 As the leading U.S. defense contractor, Lockheed is somewhat
insulated from the vagaries of routine economic cycles. While the
U.S. had made a half-hearted attempt to recognize a “peace
dividend” after the collapse of the Soviet Union in 1990, the post-
September 11 2001 world has sealed the fate of the U.S. as the
premiere World Policeman on duty. Because of this, U.S. federal
government’s Executive and Legislature will continue to fund military
expenditure through all types of economic climates. Furthermore,
astute economic technicians have come to recognize that the design
and geographical positioning of defense players like Lockheed Martin
are practical counter-measures to negative Economic cycles. In other
words, because Lockheed controls facilities, contractors, and
subcontractors throughout the United States, federal economic
policy closely works with defense policy to funnel money through the
contractor to stimulate economy during downturns; in effect
maintaining defense and national security while buttressing
economic security <><><><>
Environmental
 Lockheed Martin and its contractors and their subcontractors must
adhere to stringent government guidelines for environmental
security or risk forfeiture of contract funds;
 As of December 31, 2021, Lockheed recorded environmental
contingencies of: $742 Million (aggregate liabilities recorded in non-
current liabilities) which are offset by asset set-asides of $641 Million
(non-current assets) (Lockheed Martin Corporation, 2022);ii
 Lockheed Martin’s normal business exposes the company, its
employees and its properties (and also neighboring lands and waters)
to potential damage and environmental liabilities;
 <><><><>
Legal
 "We (the Company) are a party to litigation and other proceedings
that arise in the ordinary course of our business, including matters
arising under provisions relating to the protection of the
environment, and are subject to contingencies related to certain
businesses we previously owned.”
Legal (cont.)
 “As a U.S. Government contractor, we (the Company) are
subject to various audits and investigations by the U.S.
Government to determine whether our operations are
being conducted in accordance with applicable regulatory
requirements. U.S. Government investigations of us,
whether relating to government contracts or conducted for
other reasons, could result in administrative, civil, or
criminal liabilities, including repayments, fines or penalties
being imposed upon us, suspension, proposed debarment,
debarment from eligibility for future U.S. Government
contracting, or suspension of export privileges.”
 <><><><>
Political
 In general, the Company’s international sales are conducted
through the U.S. Government and by direct commercial sales
(DCS) to international customers. Such sales are subject to
Treaties (particularly with regard to technology transfers
abroad), U.S. Executive and Legislature policies, and the
policies of foreign governments and the disposition of
foreign nation-states’ to purchase products of U.S.
manufacture;
 Post-WWII U.S. government contractors typically conduct
operations in all or a substantial number of the 50 States.
This has the effect that each Representative and Senator
tends to support funding for production and research
contracts out of concern that jobs would otherwise suffer in
his/her home state;
 Political winds change with time. For much of the period
from the late 1970s through the present, the U.S. political
will had turned against what it perceived as exorbitant
spending on space technology and exploration. The post-
Obama climate has realized a dramatic shift and the federal
government has ramped up its funding of R&D and
manufactured hardware for space exploration – including
orbital space stations, moon bases, and telescopes for deep-
horizon views. This bodes well the Company’s future growth
prospects;
 <><><><>
Sociological
 To be direct and blunt, the Company positions itself to
produce weapons of war – killing machines, in other words.
Societal pressures urging national or regional action
towards PEACE may have the effect of creating negative
public relations for the Company and its products.
 <><><><>
Technological
 Government contracts involving military, space and other
market segments encourage highly competitive rivalries to
create or acquire cutting-edge technology. This business
involves partnerships among the Company, the Armed
Services, and various universities and institutions and is
threatened by industrial espionage and foreign spy activity;
 The Company grows its own technology through its base of
Human Capital and arrangements with Universities and
Institutions;
 The Company also secures technology through acquisition
of other firms
 <><><><><>

PORTER ANALYSIS IN BRIEF
Internal Rivalry
 The business of U.S. government contracts for military and
space hardware and technology has traditionally involved
intense competition among the leading two or three
Aviation/Avionics firms: Lockheed-Martin, Boeing, Northrup;
while GE, General Dynamics (including Electric Boat), and
Raytheon round out the top five or six for military contracts
in general. But while competition is stiff, the firms are
somewhat specialized insofar as aeronautics, for example,
does not contend against boat-builders for the same funds.
 Each leading contractor has arranged itself with facilities and
infrastructure located multiple state jurisdictions. This has
the effect that Congresspersons and Senators are reluctant
to cut funding as it risks curtailing projects which support
employment in their home states. Hence, many contracts
are awarded to more than one contractor as partial recipient
with incentive for partnerships among other the leading
contractors.
 During the post-Cold War environment, many contractors
continue to partner with would-be competitors to gain scale
and technological expertise. For instance, while Lockheed
Martin and the Boeing Company (BA) have engaged in long-
term rivalry, they have also enjoyed a long-term partnership
(F22 Raptor, for one). <><><><>
New Entrants
 The technology and manufacturing competencies/expense
for Defense and Space assets form an effective barrier to
entry. There is little potential for New Entrants to engage
competition with well-established players. <><><><>
Supplier power
 Lockheed Martin draws supply of components from
thousands of contractors and subcontractors. While certain
inputs and components are mission critical: rare-earth
metals, specialty alloys, certain patented or esoteric
processes; in general, no one supplier has material influence
over process or production (except perhaps the supply of
rare earth metals and specialty alloys for avionics or space
assets); <><><><>
Buyer / Consumer Power
 Lockheed Martin is generally beholden to the U.S.
government procurement process and its rules concerning
proposal bid, R&D, cost-plus allocations, and other criteria.
The U.S. government and its budget have extreme influence
upon how and when the Company may allocate assets for
R&D, production, and foreign sales. <><><><>
Threat of Substitutes
 Outside of its normal assortment of competitors (domestic
and foreign), there is no Substitute for the Company’s
special products and services
 <><><><>

FINANCIAL MODEL: PROSPECTIVE VIEW
Variables
CRITERIA
CoGS: F(Rev) 84.472%
Depreciation/Amortization (CoGS): F(Rev) 02.153%
SGA (Only): F(Rev) 00.000%
R&D: F(Rev) 01.663%
Depreciation/Amortization (SGA): F(Rev) 00.045%
Other Expense (Income)/Overhead: F(Rev) 00.310%
Interest Expense (Income): F(Rev) 01.250%
Tax Rate: F(EBT) 21.000%
Capital Expenditures: F(Rev) 02.467%
Working Capital: F(Rev) 04.355%
βeta 0.730
Shares Outstanding (Million) 266.110
Inflation Rate (Est.) 02.500%
RF (T-bill annual) Rate 02.910%
CAPM KE Calculation 05.531%
KB Result 04.644%
KB Result with Tax Shield 03.669%
WACC 05.437%
Market Historical Returns 06.500%
Revenue Growth Rate (Projected Estimate) 03.500%
Perpetuity Growth Rate (Inflation) 02.500%
The analyst created prospective models and sensitivity
analyses to objectively determine Lockheed Martin
valuations from Free CashFlow to Equity (FCFE). By
rigorously analyzing the firm’s historical efficient
financial performance, the analyst derived costs and
expense components as objective functions of Revenue
F(Rev), or in the case of Taxation, F(EBT).
This table recounts the summary of variables used in the
Discounted Cash Flow analysis to isolate: 1) valuation of
the Firm’s Free CashFlow to Equity; and 2) valuation per
common equity share.
Discussion
The analyst produced three distinct prospective models
of FCFE: 1) Static model varying WACC; 2) Static model
varying Revenue Growth Rate; and 3) Dynamic multi-
iterative Monte Carlo model oscillating all variables
within a tolerance of 10% coefficient of variability.
These models suggest a range of Equity valuation for
Lockheed Martin. The results page discusses the
outcomes of these Equity valuation simulations.
Costs of Capital
KE
The U.S. S&P 500 has posted recent annual returns
(2011-2021) of 14.252%; with long-term (30-year)
CAGR of 8.416%. Valuing Lockheed Martin, this
analyst reviewed the equity return of 5.531%
following the Capital Asset Pricing Model.
E(ri) = rf + β[E(rm)-rf]
= 2.910% + 0.73 X (6.500%-2.910%)
= 2.910% + 2.621%
= 5.531%
Alternative:
GORDON DIVIDEND PAYOUT MODEL:
Book Value of the Firm $USD1,000,000 10,959
Book Value Per Share BV0 41.18
Dividend Growth Rate (Gordon Model) gn 5.00%
kE = [(RoE - gn ) X (BV0 / P0)] + gn 6.557%
P0/BV0 = PBV = [(RoE-gn)/(ke-gn) 9.6354694
Price Multiple : BV0 9.635
Forecast Share Price From Multiple X BV0 396.810
KB Long-Term Debt 10K:2021
MatDate Coupon Value Annual
2021 3.350% 0.000 0
2023 3.100% 500.000 16
2025 2.900% 750.000 22
2026 3.550% 2,000.000 71
2030 1.850% 400.000 7
2035 3.600% 500.000 18
2036 5.325% 1,054.000 56
2042 4.070% 1,336.000 54
2045 3.800% 1,000.000 38
2046 4.700% 1,.326.000 62
2050 2.800% 750.000 21
2052 4.090% 1,578.000 65
2031 6.990% 1,605.000 112
-1,123.000 0
11,676.000 4.513%
With Tax Shield (20%) 3.669%
Weighted Average Cost of Capital
𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊 =
𝐾𝐾𝐵𝐵𝐵𝐵+𝐾𝐾𝐸𝐸𝐸𝐸
B+E
=
[3.669%X0.38765]+[6.557%X0.61235]
1.000
=
[1.422%] + [4.015%]
1.000
= .05437144 = 5.437144%
Market Capitalization Basis; B=Total Debt (adj. with carrying
costs); E=[Total Capitalization - (Preferred+Debt)]iii

STATIC MODEL: PROSPECTIVE VIEW
Results of the Variable Revenue Growth Rate
This display reflects per share valuations from a 1.00%
annual growth rate of revenue ($354.06 per share)
through 6.00% annual revenue growth ($621.03 per
share). The Prospective free cash-flow to equity analysis
returned an expected per share valuation of $473.836 at
a 3.50% growth rate, with WACC of 5.437%.
Discussion
The analyst expects the firm would regress to its mean
revenue growth rate of 3.745% (mimicking the U.S. long-
term inflation rate plus a small risk premium of
approximately 200 basis points) with some upside
potential as the U.S. economy overcomes COVID-
induced economic retraction and the international
climate grows more concerned of Russia and China
influence beyond their traditional range of geography
prodding many western countries to upgrade their
military materiel.
Results of the Variable WACC Growth Rate
This chart plots Lockheed Martin valuations at different rates
of capital costs. The expected value per share is $473.83 at the
calculated WACC: 5.437% (roughly 250 bp above RF ). Higher
WACC returns lower per share valuations.
Discussion
The analyst expects LMT’s weighted average cost of capital to
be no less than 5.00%, but it may be higher. Thus, the Firm
would produce true value only through increased growth in
revenue (greater volumes of government contracts and
foreign sales). As most LMT contracts are cost-plus-profit, the
firm tends to keep its costs to minimum values within the
constraints of quality control and the demands of U.S.
government oversight.
The Monte Carlo multi-iteration model (1,000,000 trials) varies
the Weighted Average Cost of Capital to the following
constraints:
Mean: 5.437%
Standard Deviation: 0.10874% (2.0% of the mean)
Hence, the Monte Carlo results would likely capture the range
of capital costs within its 1 Million iterations.

MONTE CARLO FINANCIAL MODEL: PROSPECTIVE VIEW
Overview
Monte Carlo quantitative analysis is a statistics-mathematics
process. It mimics real-world volatility to probabilistically predict a
range of outcomes. The analyst employed the identical variable
structure for both the static and Monte Carlo equity valuation
models. BUT, the Monte Carlo process dynamically alters the factors
within defined constraints. In this instance, Monte Carlo uses the
variables as the statistical mean (arithmetic average), and
fluctuated each factor 1,000,000 times at a standard deviation of
10% of the mean values of the stated variables.
Results
This chart
illustrates a
potential range
of valuation for
Lockheed Martin
common equity
per share at a
paltry 2.00%
growth rate.
Using this
variable
structure, the model delivers the following statistics: a) an expected
median per share price of $487.78; with a b) projected maximum to
$2,497. At a base 3.50% revenue growth rate, the simulation
returned a 53.68% probability of a fair valuation of over $450 per
share.
LMT: LOCKHEED MARTIN MONTE CARLO5.00%:
VALUATION PER SHARE
CURVE SHAPE Lognormal
TRIALS 1,000,000
MEAN 488.72
MEDIAN 487.78
MODE N/A
ST DEV 414.44
MINIMUM -1,526.29
MAXIMUM 2,497.16
P(VALUE>$450) 53.6785%
Discussion
The analyst sculpts scenarios with cautious estimates,
aiming to err on the side of restraint. The prospective
cashflow models use a mean per annum revenue growth
rate of 3.50%, mimicking the recent-term annual inflation
index plus 100 basis points. This Monte Carlo prospective
model also uses conservative estimates for cost/expense
factors: costs following historical mean percentages,
tempered against industry norms.
On February 24, 2022, Russia invaded Ukraine. This bold-
faced belligerence in violation of custom and affirmed
international norms prompted the U.S. government to
step up its humanitarian and military aid to Ukraine.
Reading these promises and deliveries of military
assistance, the U.S. equity investors rapidly pushed
Lockheed Martin’s share price to a high of $479. During
this same interval, some analysts (including this one)
prognosticated tame revenue growth for this U.S. defense
contractor. Indeed, LMT posted lackluster Q2 2022
earnings ($6.32 per share vs. FY2021 $6.42) and the
Company projects total FY22 sales to be flat or a very
slight decline over last year (FY21 Revenue was $66
Billion). Lockheed shares shed just north of ten percent of
value during this interval (H1 2022), falling from $450 to
just below $400 per share.
Many investors may worry of the support for Lockheed
shares. This analyst believes Lockheed is still a very strong
play. At its current per share pricing, the firm yields a
dividend of over 2.85% and the stock has strong upside
potential on market share pricing. Furthermore, LMT is
among the most stable investments short of purchasing
U.S. Treasuries. Since the firm is so closely tied to
government military expenditure (and in so many ways)
the market sometimes values it as a bond – just on its
dividend yield. So even as LMT shed pricing during this
recent period of market volatility, its intrinsic value
remains strong and stable.
This analyst expects Lockheed Martin to exhibit flat
earnings this Fiscal Year, but with a strong rebound
starting FY 2023. A scrupulous investor ought to consider
upgrades in the U.S. defense budget and allocations
during Q4 2022, but also how the U.S. postures itself with
EU and NATO vis-à-vis Russia’s maneuvers in Eastern
Europe, and also vis-à-vis China’s next steps with naval
power and its ongoing cross-the-line attitude alongside its
neighbor, Taiwan. All of these international issues will
necessarily play into how Lockheed Martin will see
potential to participate in the U.S. push to safeguard
international waters and airspace from belligerent states
and renegade powers in the coming decades.

1) Cost of Sales dominates ultimate production of Shareholder Value and Returns on Equity. Businesses have
recognized this truth since humanity’s early ancestors debated whether to hunt every day (including unhealthy hot
days), or to gather shellfish, nuts, and greens on some days and expense hunting assets (experience, training, and
energy) only within profitable conditions. But Lockheed Martin is structured as a Cost + Profit government
contractor, under very strict government controls for both quality and cost control. In this case, Lockheed Martin
can cut no costs (or potentially only very little costs). The only manner in which the firm could grow total profits is
by earning greater volumes of contracts.
2) In ...
Sensitivity Analysis
The Monte Carlo FCFE DISCOUNTED CASH FLOW PROJECTION is sensitive to particular conditions: 1) Because the perpetuity CashFlow dwarfs
estimated cash-flow in any given annum, the terminal year COST OF GOODS SOLD typically asserts dominance over the Firm and its
weighted Equity
valuation; 2) 2022 COGS;
3) 2023 COGS; 4) 2024
COGS; 5) 2025 COGS and
6) 2026 COGS
The Tornado Chart
sensitivity analysis of
Lockheed Martin’s
valuation with these
instant variables imputes
a heavy weighting upon
the perpetuity model –
likely because the near-
term growth rate of
3.50% per annum is
relatively low. This
analyst believes that
Lockheed Martin will
actually earn some
stability in 2022-2023 Y-o-Y revenue as the Russia-Ukraine conflict has sparked the U.S. government to increase support its new ally in
eastern Europe.

FRAUD ANALYSIS
Statistics Testing for Anomalous Financial Reporting
Benford’s Test
Beneish M-Score
METHODOLOGY OF FORENSIC ANALYSIS
TO DETECT FRAUD
Twenty-first century forensic
analysis of financial records
encourages mathematics and
statistics to test anomalies in
financial reporting. The analyst
favors two forensic tests: Benford’s
Test, and Beneish’s M-Score. Note:
Forensic Accounting analysis cannot
prove fraud; it simply suggests
instances of potential anomalies in
reporting.
Benford’s (First Digits) Law
Benford’s law (First Digits Law)
predicts that the first digits in
random sets of numbers which span
across several orders of magnitude
(i.e. ones, tens, hundreds,
thousands, etc.) will conform to a
set distribution (the bronze
columns). Because of compounding
over time intervals, the First Digits
rule affirms that there are more
instances of numbers beginning
with 1, then 2, then 3, and so on.
This analysis tested LMT’s Balance
Sheet numbers against Benford’s
Law. The first digits of the Balance
Sheet numbers fall very close to
expected outcomes; and the analyst
believes this indicates fair and
honest reporting.
The Beneish M-Score calculations
Lockheed Martin’s Beneish scores
are excellent for several years
running. They reflect no anomalous
readings.

OUTLOOK AND RECOMMENDATION
For most of Q1 2022, this analyst argued that LMT was
priced too high, too early. But deeper study of recent U.S.
and European defense commitments indicate that western
powers may be inclined to buttress military spending as a
bellicose Russian BEAR continues to threaten regional
stability in Eastern Europe by word and by deed.
An astute observer may rightfully suggest placing a
premium onto the share valuation precisely because of: A)
Russia’s ongoing aggressive tendencies; and B) the rise of
China and its military hardware poised to flex its
musculature in southern Asia, throughout the Pacific, and
potentially through the Indian Ocean into eastern Africa.
These ongoing international developments most probably
conclude with a tri-polar world: the U.S., Russia, and China.
This new blossoming paradigm will propel the U.S.
Executive and the Legislature to increase military spending
in the near and intermediate term for several reasons: 1)
Maintain U.S. long-standing commitments to regional
partners: Australasia, Philippines, South Korea, Taiwan,
and U.S. protectorates and territories in the Pacific; 2)
Police the region for traffickers of contraband; and 3)
Safeguard shipping and free trade.
Additionally, the U.S. space agency NASA, the European
space agency ESA, and China’s space agency CNSA are all
ramping up R&D and infrastructure to place bases on the
moon and potentially on Mars within the next several
decades. And the particular competition between the
western powers and China suggests that the respective
governments/interests view this as a zero-sum game: that
there will be loser(s) in the race to extract minerals from
asteroids, for example; and loser(s) in the race to install
permanent lunar bases with long-term military and
national security implications. These developments are
also supportive of increased contracts with potential for
LMT to participate and grow revenue providing space
technology.
In sum, Lockheed Martin is an attractive intermediate-
term growth stock (1-5 years) at any pricing below $425
level. The Company pays a decent dividend currently
yielding 2.85% at the $397 per share pricing. And the
company has maintained a regular decades-long practice
of increasing its dividend payout.
This analyst posts a strong BUY
recommendation for the Company. Lockheed
Martin is a long-standing world leader in
aviation/avionics, space-faring technology, and
armaments/munitions. It boasts over a century
of experience in aircraft design and production.
Its core competency in ballistic missile
technology, launch control, and space habitat
may emerge stronger in the coming years as the
U.S. fulfills its volition to return to the Moon and
also create colonies on Mars. Furthermore, as
China and Russia become more assertive
outside of their traditional spheres of influence,
Lockheed Martin may be called upon even more
to design and manufacture next-generation
stealth, hypersonic, and drone technology to
maintain world peace and assure the U.S.
continues to lead in the patrol of international
airspace, earth’s oceans, and ultimately the
solar system beyond.
Will Lockheed Martin experience a rapid run?
Probably not. But in many ways, Lockheed
Martin’s staid share price with dividend payout
is one of its charms. Look for Lockheed to
improve its dividend amount in the coming 12
to 18-month interval, and look for the share
price to increase moderately over the same
time frame.
Target: $450-$475
Invest Responsibly!
And remember…
It's not the size of the dog in the fight,
it's the size of the fight in the dog.
…Mark Twain

FINANCIAL INDICES

i
Lockheed Martin: Innovation With A Purpose (2013) p. 70
ii
"At December 31, 2021 and 2020, the aggregate amount of liabilities recorded relative to environmental matters was $742 million and $789 million, most of
which are recorded in other noncurrent liabilities on our consolidated balance sheets. We have recorded assets for the portion of environmental costs that are
probable of future recovery totaling $645 million and $685 million at December 31, 2021 and 2020, most of which are recorded in other noncurrent assets on
our consolidated balance sheets. See “Note 1 – Organization and Significant Accounting Policies” for more information." (Lockheed Martin Corporation, 2022) p.
103
iii See the WACC Worksheet for details of each component. The Monte Carlo Workbook algorithm is hard coded to calculate WACC using various methods:
CAPM, Gordon Dividend Growth Model, RoE model, or combinations. In this instant, the system derived the WACC using market capitalization with the then
share price of $460 and with weighted number of shares equivalent to the average of 273 Millions (Yahoo Finance value for shares outstanding) and 266 Millions
(the 2021-12-31 10-K value). The coded WACC calculation used the Book Value of all Debt (B) to calculate its percentage of total capitalization, which also
provided the arithmetic reciprocal for the Equity weighting. The cost of debt (B) was derived above. The cost of Equity emerged from the Gordon Dividend
Growth Model using the then share price of $440.56

2022-07-26_LMT-MC-ValuationReport_Draft02.pdf

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