Thursday, 31 January 2013

A Look at Lockheed Martin


Lockheed Martin’s shares have tumbled about 10% over the past week.

Although I’m a little weary when it comes to companies reliant to a large extent on government spending, LMT’s stock price and yield are attractive.

I suspect that western governments will continue to invest and spend on defense so as to remain military superpowers.  

Average Dividend Yield Analysis*

LMT-N
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2002
$71.52
$45.85
$0.11
$0.11
$0.11
$0.12
$0.45
0.98%
0.63%
2003
$58.95
$40.64
$0.12
$0.12
$0.12
$0.22
$0.58
1.43%
0.98%
2004
$61.77
$43.61
$0.22
$0.22
$0.22
$0.25
$0.91
2.09%
1.47%
2005
$65.46
$52.54
$0.25
$0.25
$0.25
$0.30
$1.05
2.00%
1.60%
2006
$93.24
$62.52
$0.30
$0.30
$0.30
$0.35
$1.25
2.00%
1.34%
2007
$113.74
$88.86
$0.35
$0.35
$0.35
$0.42
$1.47
1.65%
1.29%
2008
$120.30
$67.38
$0.42
$0.42
$0.42
$0.57
$1.83
2.72%
1.52%
2009
$87.06
$57.41
$0.57
$0.57
$0.57
$0.63
$2.34
4.08%
2.69%
2010
$87.19
$67.68
$0.63
$0.63
$0.63
$0.75
$2.64
3.90%
3.03%
2011
$82.43
$66.36
$0.75
$0.75
$0.75
$1.00
$3.25
4.90%
3.94%
2012
$95.92
$79.05
$1.00
$1.00
$1.00
$1.15
$4.15
5.25%
4.33%
2013


$1.15
$1.15
$1.15
$1.15
$4.60


Stock prices and dividends are per calendar year.
11y ave
2.82%
2.08%
Dividends are recorded in the quarter they were paid.
5y ave
4.17%
1.97%







3y ave
4.68%
2.41%







5y
$110.36
$233.03







3y
$98.23
$190.69






Super Cheap
$87.62


The table shows the 3 year average dividend yield to be 4.68% ((3.90% + 4.90% + 5.25%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $4.60, one would have to pay $98.23 for a 4.68% yield.

Buying the stock at its low in 2012 would have earned you an initial yield of 5.25%. Using the current annual dividend, that corresponds to a stock price of $87.62 today (see “super cheap” price in the table above).

Graham Price

LMT’s 2010, 2011 and 2012 EPS were $7.18, $7.85 and $8.36. 3Y Ave EPS = $7.80.
LMT’s BV is $7.55.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $36.39

Cyclically Adjusted Price to Earnings Ratio

LMT’s 10Y Ave EPS = $6.12
CAPE = Stock Price / 10Y Ave EPS = $89.79 / $4.08 = 14.2
A CAPE below 20 is good.

Conclusion

LMT increased EPS from $1.18 in 2002 to $8.36 in 2012. That’s an increase of 7.08 times over 11 years. Pretty dam good, although I don’t think EPS will increase as fast over the next decade.

Based Average Dividend Yield and CAPE, LMT appears undervalued. I’m seriously considering buying 50 shares if it hits $85.


*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.



6 comments:

  1. I'm also tempted by LMT, RTN, HRS. I may take a 20% position now in one or two of them, then wait and see how they do ahead of the March 1st deadline. I think the market could go a lot lower over the next month.

    ReplyDelete
    Replies
    1. I fear the same. Markets have been on crack for the last little while, and when they come down, LMT might follow. It's current price is pretty good. If it hit $80, that would be so so good! Thanks for stoppin' by.

      Delete
  2. I bought more LMT late today that I will include in my Feb. purchases. The yield is tough to beat.

    ReplyDelete
    Replies
    1. Hey AAI, Glad to see you're also interested in LMT. The price is really quite attractive. Earlier today, my wife asked me what LMT does. When I told her they make missiles, planes and warships, both my kids got really excited and begged me to buy the stock. It was really quite funny.

      Delete
  3. I've got a target price at $87.22 so essentially the same as yours. I hadn't noticed the pullback this past week so I'll have to keep a closer eye on it since it's getting close to that range. I'd like to get some defense stocks because I don't see spending on defense having any meaningful cuts. I certainly haven't enjoyed January from a purchasing perspective, but something will come up possibly the sequestration deadline, to push them lower. It's just a matter of staying patient while waiting for the opportunities.

    ReplyDelete
    Replies
    1. PIP, With tensions rising around the world, countries will continue spending on defense. With the Russians back in the game, Iran being a pain and our dependency on oil supplies half way around the world, I don't see how this can change.

      Delete