Editor’s note: This column is part of our Best Stocks for 2021 contest. Bob Ciura’s pick for the contest is Lockheed Martin (NYSE:LMT).
The first quarter of 2021 was characterized by a steady economic recovery from the coronavirus pandemic. Lockheed Martin (NYSE:LMT) has benefited from the economic bounce-back, and its stock price has registered a 2% year-to-date increase.
Lockheed Martin is not a “get-rich-quick” investment, and its stock should not be viewed in the same category as some of the momentum stocks that have posted more impressive gains to start the year.
Quite the opposite — Lockheed Martin is a blue chip dividend stock with a leadership position in its industry and durable competitive advantages to help it outlast any economic environment.
From that perspective, Lockheed Martin has done exactly what it is supposed to do in the first three months of 2021.
Recent News for LMT Stock
The company released strong fourth-quarter and full-year earnings on January 26, 2021. Fourth-quarter revenue increased 7% to just over $17 billion, while earnings-per-share increased 21% from the same quarter the previous year. All four of the company’s business segments posted quarterly sales growth. For 2020, revenue increased 9% to $65.4 billion while earnings per share increased 12%. This was a very strong performance for Lockheed Martin, as full-year revenue and earnings-per-share both set company records.
Another important event that took place in the first quarter of the year was the company’s recent $4.6 billion acquisition of Aerojet Rocketdyne Holdings, to boost its services in propulsion systems. This acquisition should also provide efficiencies through cost synergies, meaning the purchase will likely be accretive to Lockheed Martin’s earnings.
Lockheed Martin’s growth prospects are further augmented by the company’s recent contract wins. Lockheed Martin has received a number of contracts over the first three months of the year, that collectively add up to significant growth opportunities. For example, in March alone Lockheed Martin secure the following contracts:
- March 1: $128.68 million Navy contract
- March 12: $558.84 million Navy contract modification
- March 23: $3.69 billion Missile Defense Agency contract
- March 25: $175.53 million Army contract modification
These contract wins, along with the Aerojet Rocketdyne acquisition and continued improvement in the global economy, means Lockheed Martin should continue to generate strong growth in 2021.
The 2021 Outlook
The rest of the year is likely to be equally strong for Lockheed Martin. The company’s backlog of approximately $147.13 billion bodes well for future product and service demand. Management expects full-year revenue of $67.1 billion to $68.5 billion, along with earnings-per-share in the range of $26.00 –$26.30. At the midpoint of company guidance, revenue and earnings-per-share are expected to increase 3.7% and 7.6%, respectively.
In the meantime, Lockheed Martin continues to be a reliable dividend stock. The stock currently yields 2.9%, which is well above the S&P 500 average of 1.5%. And, Lockheed Martin is a dividend growth stock with a long history of strong raises. The company has increased its dividend for 18 consecutive years. In the past 5 years, dividends have grown at a compound annual rate of 9.5%.
Future dividend growth could be at a similar level, as earnings continue to grow at a double-digit rate. With a 2021 dividend payout ratio of 40%, based on full-year EPS guidance, Lockheed Martin’s dividend payout is highly secure. As a result, Lockheed Martin continues to be a solid pick for dividend growth investors.
The valuation continues to be attractive as well. Using the midpoint of full-year EPS guidance ($26.15) Lockheed Martin shares trade for a P/E ratio of 13.8. This is a very reasonable P/E, especially considering the S&P 500 Index has a P/E of 40. We view Lockheed Martin stock as significantly undervalued, and an expanding P/E multiple could significantly boost shareholder returns.
Final Thoughts On Lockheed Martin
Lockheed Martin navigated 2020 extremely well. This company proved its resilience in the face of broader economic downturns by posting record revenue and earnings-per-share for the year. In the first quarter of 2021, it has continued to execute on its strategic growth initiatives through multiple contract wins, and the acquisition of Aerojet Rocketdyne.
Shares continue to offer exceptional value and dividends, along with future growth potential. Therefore, Lockheed Martin stock continues to be a highly attractive stock for growth and income.
On the date of publication, Bob Ciura was long LMT.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.