Lockheed Martin Corporation Quick Take

Buy/Hold | $USD 2022-July-26

Current Market Price 397.01
Your Mission Is Ours Target Price 450.00
Dividend | Yield 11.20 | 2.85%
The March 1995 merger of two leading U.S. defense industry contractors: Martin Growth Expectation Inflation +100bp
Marietta (then 3rd position by revenue) and Lockheed Corporation (then 2nd
position by revenue) formed Lockheed Martin Corporation. Headquartered near Investment Period Long-term: Years
Washington, DC in North Bethesda, Maryland, the firm boasts over 115 thousand
employees worldwide, including about 60 thousand engineers and scientists. STOCK INFO $USD 2022-06-30
Lockheed's superior aeronautical innovations include: the Vega (1928); Electra Sector SIC 3812: Aeronautics
(1930s); Constellation (WWII); C-130 Hercules (1956 and ongoing); SR-71 Market Cap 1 106 Billion
Blackbird (1966); F-117 Nighthawk (1983); F-35 Lightning II (2006); and many
Total Debt (12/2021) 11.64 Billion
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)
Beta 2 0.73
ICBMs. Martin further developed the Titan concept as the strongest booster 52 Wk High | Low 479.99 | 324.23
rockets for larger/heavier satellites and for space exploration: Titan III (1964) and Avg Daily Volume 1.46 Million Shares
Titan IV (1990). Book Value (per share) 43.30
From 1943, Lockheed chartered its Advanced Development Division aka "Skunk
Ticker NYSE: LMT
Works" which has earned an extraordinary record of quality and turn-around IRS EIN 52-1893632
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 INSTITUTION INVESTORS: @ 2021/12/30
engineering. State Street ≈ 14.86 %
Vanguard ≈ 7.82 %
The firm's 2015 acquisition of Sikorsky aircraft for $9 Billion enhanced Lockheed
Blackrock ≈ 6.59 %
Martin's core competency in defense aircraft while advancing LMT’s availability Capital World Investors ≈ 5.05 %
to commercial sales. Sikorsky enjoys worldwide brand equity of a level similar in OTHERS IN THE MARKET:
quality and breadth with Lockheed Martin. Free Float ≈ 232.47 Million | 87.22%
Lockheed Martin also maintains a leading role in spacecraft design and INDEX Trend: NYSE 2019 2020 2021
implementation. Partnership with Amazon, Cisco and other corporations brings CAGR (2000-Year) 3.707% 3.803% 4.412%
the Company’s technology to commercial space assets.
Y-o-Y Growth 10.69% 5.75% 15.12%

Key Financials 10-Yr Chart : LMT S&P 500

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% The Interval: Q3 2012 - Q2 2022. Lockheed Martin (Blue) has
RoA 11.24% 13.11% 13.47% 12.41% 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.
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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,
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 Europe.
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.
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The immediate aftermath of WWII saw the U.S.
economy rapidly transition to civilian production. The
country enjoyed renewed vitality and optimism arising
from America’s overarching victory; while the nation
swanked manufacturing 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 breakthroughs toward civilian air
travel. In addition, the U.S. recruited German scientists
and engineers with former ties to the
Nationalsozialistische Deutsche Arbeiterpartei to
buttress U.S. design and manufacture in aviation,
avionics, and aeronautics; and in rocketry and
ballistics.
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 stealthy aircraft to spy
on enemy positions and navigate safely back home.
Finally, the U.S. demanded technology to launch
missiles based within the country’s nuclear submarines
silently patrolling beneath the waves.
From the 1950s and through the 2000s, Martin
Marietta developed a number of ICBM types (Atlas,
Peacekeeper, Titan, etc.); medium range missiles
(Javelin, Midgetman, Pershing, etc.); and spacecraft to
carry scientific instruments into space and investigate
the far reaches of our solar system (Magellan, Viking,
Mars Polar Lander, etc.).
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 A-12 (1962) and SR-71
Blackbird (1966), and the F-117 Nighthawk (1978).
Lockheed's other notable aeronautics innovations
include: C-130 Hercules and C-5, 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).
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PESTLE: CHARACTERISTICS
The majority of these points appear in LMT 2021-12-31 10-K
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 Policeman/Guard House Duty Officer. 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 manages
facilities, contractors, and subcontractors throughout the United
States, federal economic policy closely works with defense policy to
funnel money through the larger defense contractors to stimulate
economy during cyclical 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 funding;
 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;
 Lockheed Martin institutionalized an executive position responsible
for Environmental compliance and Operations Safety and Health:
Corporate Vice President of Environment, Safety and Health (ESH)
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.”
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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.” iii
 U.S. federal law, particularly The Foreign Corrupt Practices
Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq.
prohibits certain classes of persons and entities to make
payments to foreign government officials to assist in
obtaining or retaining business. Lockheed recorded one
violation thirty years ago in 1994, and the Company has
seemingly been mindful of its international business
practices since that time; iv
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
U.S. Executive and Legislature policies (particularly with
regard to technology transfers abroad), International
Treaties supported by the U.S., and the policies of foreign
governments and their disposition 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 a perception of 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 for R&D and
manufacture of 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, regional, or international
policy towards PEACE may have the effect of creating negative
public relations for the Company, its intellectual property,
and its production.
Technological
 Government contracts involving military, space and other
market segments encourage competitive rivalries to create
or acquire cutting-edge technology. This business involves
partnerships among the Company, the Armed Services, and
various universities and institutions with ever-present
threats of 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
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PORTER ANALYSIS IN BRIEF
Internal Rivalry
 The business of U.S. government contracts for
aviation and space hardware and technology
has traditionally involved intense competition
among the leading two or three
Aviation/Avionics firms: Lockheed-Martin,
Boeing, and 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. But each vies for
its larger piece of the pie, or at least, no
reduction in that slice.
 Each leading contractor has arranged itself
with facilities and infrastructure located
throughout 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. Ultimately, many
contract awards are split across multiple
contractors incentivizing recipients to arrange
partnerships.
 Even without government enticements to
partner up, many contractors affiliate 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).
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New Entrants
 The technology, manufacturing
competencies, and 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, and 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
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FINANCIAL MODEL: PROSPECTIVE VIEW Costs of Capital

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

11,676.000 4.513%
Discussion With Tax Shield (20%) 3.669%
The analyst produced three distinct prospective models
of FCFE: 1) Static model varying WACC; 2) Static model Weighted Average Cost of Capital
varying Revenue Growth Rate; and 3) Dynamic multi-
𝐾𝐾 𝐵𝐵+𝐾𝐾 𝐸𝐸 [3.669%X0.38765]+[6.557%X0.61235]
iterative Monte Carlo model oscillating all variables 𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊 = 𝐵𝐵
B+E
𝐸𝐸
= 1.000
within a tolerance of 10% coefficient of variability. [1.422%] + [4.015%]
=
These models suggest a range of Equity valuation for 1.000
= .05437144 = 5.437144%
Lockheed Martin. The results page discusses the
Market Capitalization Basis; B=Total Debt (adj. with carrying
outcomes of these Equity valuation simulations. costs); E=[Total Capitalization - (Preferred+Debt)] v

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STATIC MODEL: PROSPECTIVE VIEW Results of the Variable WACC Growth Rate
Results of the Variable Revenue Growth Rate

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 risk premium of approximately
100 to 150 basis points) with some upside potential as
the post-COVID international climate grows more
concerned of Russia’s and China’s intensifying influence
beyond their traditional range of geography. North
Korea’s ongoing bellicosity also concerns the U.S. and its
allies. The transition to a tri-polar world coupled with the
ongoing threat of rogue nation-states, international This chart (above) plots Lockheed Martin valuations at
terrorism, and piracy at sea is nudging many western different rates of capital costs. The expected value per share is
countries to significantly upgrade their military materiel. $473.83 at the calculated WACC: 5.437% (roughly 250 bp
above RF ). Higher WACC returns lower per share valuations.
This display reflects per share valuations from a 1.00%
annual growth rate of revenue ($354.06 per share) Discussion
through 6.00% annual revenue growth ($621.03 per
share). The Prospective free cash-flow to equity analysis 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
returned an expected per share valuation of $473.836 at
would produce true value only through increased growth in
a 3.50% growth rate, with WACC of 5.437%. 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 Normally
distributed.

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MONTE CARLO FINANCIAL MODEL: PROSPECTIVE VIEW Discussion

Overview The analyst sculpts scenarios with cautious estimates,
Monte Carlo quantitative analysis is a statistics-mathematics aiming to err on the side of restraint. The prospective
process. It mimics real-world volatility to probabilistically predict a cashflow models use a mean per annum revenue growth
range of outcomes. The analyst employed the identical variable rate of 3.50%, mimicking the recent-term annual inflation
structure for both the static and Monte Carlo equity valuation index plus 100 basis points. This Monte Carlo prospective
models. BUT, the Monte Carlo process dynamically alters the factors model also uses conservative estimates for cost/expense
within defined constraints. In this instance, Monte Carlo uses the factors: costs following historical mean percentages,
variables as the statistical mean (probability-weighted average), tempered against industry norms.
and fluctuated each factor 1,000,000 times at a standard deviation
of 10% of the mean values of the stated variables according to a
On February 24, 2022, Russia invaded Ukraine. This bold-
Normal Distribution.
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, 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
Results LMT: LOCKHEED MARTIN MONTE CARLO3.50%: value during this interval (H1 2022), falling from $450 to
VALUATION PER SHARE just below $400 per share.
This chart
illustrates a CURVE SHAPE Lognormal
potential range TRIALS 1,000,000 Many investors may worry of the support for Lockheed
of valuation for MEAN 488.72 shares. This analyst believes Lockheed is still a strong
Lockheed Martin MEDIAN 487.78 investment vehicle. At its current per share pricing, the
common equity MODE N/A firm yields a dividend of over 2.85% and the stock has
per share at a ST DEV 414.44 strong upside potential on market share pricing.
3.50% growth MINIMUM -1,526.29 Furthermore, LMT is among the most stable investments
rate. Using this MAXIMUM 2,497.16
short of purchasing U.S. Treasuries. Since the firm is so
variable P(VALUE>$450) 53.6785% closely tied to government military expenditure (and in so
structure, the many ways) the market sometimes values it as a bond –
model delivers the following statistics: a) an expected median per just on its dividend yield. So even as LMT shed pricing
share price of $487.78; with a b) projected maximum to $2,497. At during this recent period of market volatility, its intrinsic
a base 3.50% revenue growth rate, the simulation returned a value remains strong and stable.
53.68% probability of a fair valuation over $450 per share.

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.

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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.

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. 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) The Tornado analysis did not identify Tax payments under its sensitivity to variables assessment. The
analyst does point out: Clearly the 2017 Tax Cuts and Jobs Act (TCJA) which low-balled corporate tax
from 35% to 21% has raised U.S. corporate Net Income performance across the board. This effective
raise of corporate income translated itself into a major boost to the major U.S. Equity indices.
a. The analyst notes that any increase in U.S. corporate taxes will have an immediate effect on
LMT valuation (and all other U.S. corporate entities).

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FRAUD ANALYSIS METHODOLOGY OF FORENSIC ANALYSIS

Statistics Testing for Anomalous Financial Reporting TO DETECT FRAUD

Benford’s Test 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)
Beneish M-Score 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.

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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 with spheres of influence
headed respectively by 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, Japan, Latin America, NATO and
Eastern Europe partners, Philippines, South Korea, Taiwan,
and U.S. protectorates and territories in the Pacific; 2)
Police the world’s oceans 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 and/or economic 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.
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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
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FINANCIAL INDICES

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FINANCIAL INDICES

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FINANCIAL INDICES

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FINANCIAL INDICES

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FINANCIAL INDICES

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FINANCIAL INDICES

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i
Lockheed Martin: Innovation With A Purpose (2013) p. 70 (Lockheed Martin, 2022)
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
Lockheed Martin 2021-12-31 10-K, p. 26 (Lockheed Martin Corporation, 2022)
iv
United States of America v. Lockheed Corporation, et al.; Related FCPA Matter: Lockheed's 1988 Involvement in Egypt (https://fcpa.stanford.edu/enforcement-
action.html?id=24) (Stanford University, 2022)
v
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 $396 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 $396 .

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