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Accelerated allied defense procurement across NATO and Indo-Pacific theaters alongside Missiles & Fire Control operating leverage.
Consolidated operating margin falls below 7.65% over a 12-month period against the 10.65% guided FY2026 baseline.
Lockheed Martin Corporation (NYSE: LMT) is rated Strong Buy at $513.35 as of September 29, 2026, supported by an intrinsic fair value of $696.60 per share that implies 35.7% upside, driven by multi-decade franchise durability across the F-35 enterprise, high-margin precision strike expansion, and robust free cash flow conversion.4
Lockheed Martin Corporation represents a compelling risk-adjusted compounder in the aerospace and defense sector, earning a Strong Buy recommendation. At the analysis price of $513.35 as of September 29, 2026, the equity trades at 16.16x forward earnings, which sits at a notable discount to our synthesized fair value of $696.60 per share, indicating 35.7% upside potential. The valuation reflects durable earnings visibility anchored on consensus FY2026 EPS of $30.48 and FY2027 EPS of $32.76. This valuation gap is further corroborated against the present-value equivalent of the 12-month of $594.18 (undiscounted target of $636.74 discounted at a 7.163% ), confirming that current market trading levels underappreciate Lockheed Martin's structural margin resilience and capital conversion.
The cornerstone of Lockheed Martin's operational wide moat is its Aeronautics segment, which generated $30.26B of revenue in FY2025, accounting for 40.3% of consolidated sales of $75.05B. The franchise is anchored by the F-35 Lightning II, the only in-production fifth-generation stealth fighter available to the United States and allied nations. With management raising full-year 2026 Aeronautics revenue guidance to $31.7B-$32.7B and segment operating profit to $3.0B-$3.08B, the platform is transitioning toward high-margin fleet sustainment and modernization flight hours. High switching costs and sole-source program integration protect this cash-generative foundation against competitive encroachment across commercial and industrial cycles.578
Growth acceleration is led by Missiles & Fire Control (MFC) and expanding international defense commitments. MFC delivered $14.45B in FY2025 revenue, with management lifting FY2026 guidance to $16.5B-$16.9B in revenue and $2.3B-$2.35B in operating profit, driven by mid-teens operating margins on high-demand systems like PAC-3 and HIMARS. Simultaneously, geopolitical realignments are driving robust allied procurement, with FY2025 sales reaching $8.81B in Europe (11.7% of total) and $7.82B in the Asia-Pacific region (10.4% of total). As NATO members reinforce their 2% of GDP defense commitments, multiyear procurement contracts provide multi-year revenue visibility that outpaces mature domestic base spending.58
Lockheed Martin operates as an archetypal mature dividend compounder with exceptionally low capital intensity. In FY2025, the company generated $8.56B in operating cash flow and incurred $1.65B in capital expenditures, yielding $6.91B in free cash flow —exceeding GAAP net income of $5.02B. For FY2026, management raised free cash flow guidance to $7.0B-$7.2B, even while absorbing a planned capex increase to $2.0B-$2.4B to expand munitions capacity. This cash generative engine directly funds consistent dividend increases and steady share buybacks, which lowered diluted shares to 230.79M as of September 29, 2026, driving compounded per-share earnings growth.4567
While the baseline outlook is robust, investors must evaluate specific operational and procurement risks. Domestic defense budgets represent 71.6% of FY2025 revenue ($53.71B), leaving the business vulnerable to congressional continuing resolutions or procurement budget caps. In addition, large-scale production ramps carry near-term booking dilution, and Federal Acquisition Regulation (FAR) recosting rules present repricing friction on modernized lines. We monitor consolidated operating margins against our 7.65% thesis break threshold as well as annual free cash flow against a $5.50B checkpoint, ensuring that any margin degradation or working capital strain is detected promptly.58
Aeronautics generated $30.26B in FY2025 revenue and is guided to $31.7B-$32.7B in FY2026. As the only Western in-production fifth-generation fighter, the F-35 provides unmatched long-term fleet sustainment and high-margin modernization revenue.58
Missiles & Fire Control is guided to generate $16.5B-$16.9B in FY2026 revenue and $2.3B-$2.35B in operating profit at mid-teens margins. Urgent global demand for PAC-3 and precision strike systems reinforces pricing power and multi-year production backlog.5
International revenue delivered $8.81B in Europe and $7.82B in Asia-Pacific in FY2025. NATO 2% GDP defense spending commitments and Pacific deterrence initiatives drive expanding Foreign Military Sales agreements that diversify domestic procurement exposure.8
We reiterate a Strong Buy rating on Lockheed Martin Corporation with a fair value of $696.60 per share, representing a 35.7% upside from the current share price of $513.35. Trading at 16.16x forward earnings, the market undervalues the company's multi-decade visibility across the F-35 program, high-margin munitions expansion in Missiles & Fire Control, and disciplined capital return supported by guided FY2026 free cash flow of $7.0B to $7.2B.458
MFC provides air and missile defense systems; tactical missiles and precision strike weapon systems; logistics; fire control systems; and mission operations support, readiness, engineering support and integration services. MFC also has contracts with the U.S. Government for various classified programs. Its Space business segment is engaged in the research and design, development, engineering and production of satellites, space transportation systems, and strategic, advanced strike and defensive systems. Space provides network-enabled situational awareness and integrates complex space and ground global systems to help its customers gather, analyze, and securely distribute critical intelligence data.
Space is also responsible for various classified systems and services in support of vital national security systems. Cash flows related to investing activities primarily include capital expenditures and payments for acquisitions and divestitures of businesses and investments. The majority of its capital expenditures are for equipment and facilities infrastructure that generally are incurred to support new and existing programs across all of its business segments. LOCKHEED MARTIN CORPORATION also incurs capital expenditures for information technology to support programs and general enterprise information technology infrastructure, inclusive of costs for the development or purchase of internal-use software.
A severe stress environment for Lockheed Martin synthesizes concurrent domestic procurement austerity, program-level execution missteps, and cost-of-capital normalization. Under this combined shock, US Department of Defense budgetary friction or Continuing Resolutions freeze domestic procurement growth across Aeronautics and Missiles & Fire Control, directly threatening the 71.6% of revenue derived from the US federal government ($53.71B in FY2025). Simultaneously, solid rocket motor supply chain bottlenecks and classified development program cost growth trigger reach-forward losses on fixed-price development programs, compounding the Federal Acquisition Regulation (FAR) cost repricing dynamics highlighted by management. In this environment, consolidated operating margins compress toward 9.50%-9.80%, echoing the FY2024 operating margin of 9.87%,. Concurrently, elevated working capital commitments to support munitions inventory alongside elevated capital expenditures of $2.0B-$2.4B pressure annual free cash flow toward $5.0B-$5.5B, forcing management to curtail share repurchases and reduce EPS growth to 6.5%. Capital market normalization drives the cost of equity from the computed moderate baseline of 7.1630% toward 9.16%, compressing the terminal P/E multiple to 13.5x and yielding a downside fair value of $438.38. Even under this stringent stress path, Lockheed Martin's $20.54B total debt remains manageable against operating cash flows of $8.56B, preserving investment-grade liquidity and dividend coverage.
Reported operating margin fell to 9.87% in FY2024 and was 10.30% in FY2025,. Management noted that large production ramps face early booking dilution and FAR recosting risks reduce pricing on modernized lines. A 300 bps shock against the 10.65% guided 2026 baseline margin reduces operating profit toward $6.2B.57
De vijf ontwikkelingen die onze beleggingsthese zouden verzwakken.
Unanticipated fixed-price development program reach-forward charges or FAR recosting penalties diluting program profitability.
Huidig:10.30% in FY2025 (following 9.87% in FY2024)
Waarschuwing als< 9.50% on a trailing twelve-month basis
Lockheed Martin Corporation possesses an entrenched wide economic moat underpinned by sole-source prime contractor positions across the Western defense establishment. Consolidated performance is anchored by the Aeronautics segment, where the F-35 Lightning II program represents the only operational fifth-generation stealth fighter in active, high-rate production in the free world. Aeronautics accounted for $30.26B of FY2025 consolidated revenue of $75.05B,, and is guided to $31.7B-$32.7B in FY2026 with segment profit of $3.0B-$3.08B. Customer switching costs in this franchise are virtually absolute: once an allied nation selects the F-35, it commits to a multi-decade operational infrastructure encompassing pilot instruction pipelines, secure mission-data programming, global depot repair tooling, and specialized maintenance ecosystems that cannot be transitioned to a competing airframe without multi-billion-dollar obsolescence costs and acute national security degradation.
Complementing Aeronautics, Missiles & Fire Control (MFC) and Rotary & Mission Systems (RMS) house proprietary, classified technologies that create near-impenetrable barriers to entry. MFC delivered $14.45B in FY2025 revenue and $1.99B in segment operating income, with FY2026 revenue guided to $16.5B-$16.9B and segment profit to $2.3B-$2.35B at mid-teens operating margins. Franchise programs such as the PAC-3 MSE missile interceptor, THAAD, GMLRS, and the Aegis Combat System rely on classified IP, specialized manufacturing processes, and decades of government-funded telemetry data. Non-defense industrial peers, such as FDX (operating margin 11.13%), lack the national security clearances, testing ranges, and specialized engineering credentials required to contest these contracts, insulating Lockheed Martin from commercial price competition.
Lockheed Martin's economic moat translates into exceptional financial durability. With an ROIC of 23.81% against a computed WACC of 6.8601% and Ke of 7.1630%, the business compounds intrinsic value across shifting economic cycles. FCF generation of $6.91B in FY2025 and guided FY2026 FCF of $7.0B-$7.2B provides abundant self-funding capacity for internal R&D and targeted capacity expansions. This scale enables rapid prototyping—such as delivering the Grizzly counter-UAS demonstrator from concept to firing range in 45 days —cementing Lockheed Martin's structural advantage as the primary systems integrator for the United States and its global treaty allies.
Lockheed Martin generates an ROIC of 23.81%, generating a 16.95 percentage point economic spread above its computed WACC of 6.8601% and Ke of 7.1630%. This excess return is generated from an operating model with $7.73B in FY2025 operating income on modest capital intensity (FY2025 CapEx of $1.65B, or 2.2% of revenue),. Even with FY2026 capital expenditures stepping up to $2.0B-$2.4B to expand high-demand munitions capacity, projected segment operating profits of $8.5B-$8.7B ensure that economic rents remain durable and well above industry cost of capital benchmarks.257
Each lens answers a different valuation question. Only included lenses set Fair value; floors and diagnostics provide context.
The highlighted cell is Fair value when every assumption sits at its base level ($696.60). Each row and column shows what Fair value becomes when one assumption moves.
Free cash flow to the firm stays positive in the first projected year at $5.7B after modeled reinvestment of $1.6B, with terminal value at 84.4% of enterprise value. A sudden drop in free cash flow is not projected unless capital spending relative to revenue, reinvestment, or gross margin resets materially.
The base case represents the modal expected trajectory under disciplined contract execution and steady allied defense procurement. Lockheed Martin meets raised full-year 2026 guidance, generating consolidated sales of $80.75B and EPS of $30.48, before advancing to $85.53B in revenue and $32.76 in EPS in FY2027,. Operating margins normalize from 10.30% in FY2025 toward 10.65% in FY2026 and 11.23% by FY2030, driven by Missiles & Fire Control operating leverage and Aeronautics sustainment volume. Free cash flow of $7.0B-$7.2B in FY2026 funds continuous anti-dilutive share repurchases and regular dividend compounding. Intrinsic value is anchored on discounted earnings and enterprise cash flow models at $696.60 per share.
Delivering quarterly results ahead of expectations validates operating leverage across Aeronautics and Missiles & Fire Control, confirming that high-rate production ramps are overcoming initial booking dilution. A beat reinforces the thesis of structural margin expansion toward 10.84% in FY2027 and underpins the 35.7% intrinsic upside.
Performance matching consensus mean expectations ($20.43B revenue and $7.45 EPS for Q3,) keeps Lockheed Martin on track for full-year 2026 guidance ($81.01B consensus revenue and $30.48 EPS). Steady execution sustains base-case fair value compounding.
A material shortfall below consensus thresholds driven by fixed-price reach-forward charges or F-35 delivery interruptions would challenge near-term margin normalization assumptions. While long-term franchise value remains protected by sole-source backlogs, near-term valuation velocity would moderate, warranting a downgrade from Strong Buy to Buy.
Lockheed Martin exhibits high earnings quality supported by exceptional cash conversion and disciplined accounting. In FY2025, operating cash flow of $8.56B and free cash flow of $6.91B exceeded GAAP net income of $5.02B, representing a cash-to-net-income conversion ratio of 137.7%. Stock-based compensation of $304M represents only 0.40% of consolidated sales, well below the industry benchmark of 1.20%. For the first half of 2026, YTD operating cash flow reached $3.46B and YTD free cash flow reached $2.63B against CapEx of $829M, confirming sustained high cash realization. Segment profit recognition reflects conservative risk-reduction milestone stepping over multiyear production runs.56
Aeronautics is Lockheed Martin's largest segment, contributing 40.3% of FY2025 consolidated sales ($30.26B); delivery execution directly drives enterprise revenue and high-margin depot sustainment cash flows.8
Cash flow conversion is exceptional. In FY2025, Lockheed Martin generated $8.56B in operating cash flow and incurred $1.65B in capital expenditures, delivering $6.91B in free cash flow. This converted 137.7% of GAAP net income ($5.02B). For the first six months of 2026, YTD operating cash flow reached $3.46B and YTD free cash flow reached $2.63B after $829M in CapEx. Management raised full-year 2026 FCF guidance to $7.0B-$7.2B, supported by favorable corporate alternative minimum tax IRS rulings and working capital normalization. This cash generation provides robust multi-year support for share repurchases and progressive dividend compounding.
Lockheed Martin's ROIC of 23.81% is supported by high-margin sole-source defense franchises and low asset intensity. As segment operating profits expand to $8.5B-$8.7B in FY2026 from FY2025 EBIT of $7.73B, capital turnover and operating leverage are driving an improving returns trajectory across the forecast horizon.
ROIC of 23.81% substantially exceeds the computed WACC of 6.8601% (based on an equity weight of 85.23%, debt weight of 14.77%, and moderate Ke of 7.1630%). The resulting economic profit spread of 16.95 percentage points underscores robust, wide-moat competitive rent generation.
| Omzet | US$ 75.048.000.000 |
|---|---|
| Kostprijs van de omzet | US$ 67.429.000.000 |
| Brutowinst | US$ 7.619.000.000 |
| Bedrijfskosten | US$ 0 |
| Bedrijfsresultaat | US$ 7.731.000.000 |
| Niet-operationele posten en belastingen | US$ -2.714.000.000 |
| Nettowinst | US$ 5.017.000.000 |
| Totale activa | US$ 59.840.000.000 |
|---|---|
| Liquide middelen | US$ 4.121.000.000 |
| Vlottende activa | US$ 25.362.000.000 |
| Totale verplichtingen | US$ 53.119.000.000 |
| Kortlopende verplichtingen | US$ 23.335.000.000 |
| Eigen vermogen | US$ 6.721.000.000 |
| Nettowinst | US$ 5.017.000.000 |
|---|---|
| Operationele instroom | US$ 8.557.000.000 |
| Afschrijvingen en amortisatie | US$ 1.687.000.000 |
| Aandelenbeloning | US$ 304.000.000 |
| Overige operationele aanpassingen | US$ 1.549.000.000 |
| Operationele kasstroom | US$ 8.557.000.000 |
| Beschikbare liquide middelen | US$ 11.040.000.000 |
| Beginstand liquide middelen | US$ 2.483.000.000 |
| Investeringsuitstroom | US$ 1.977.000.000 |
| Investeringen | US$ 1.649.000.000 |
| Overige investeringsactiviteiten | US$ 328.000.000 |
| Financieringsuitstroom | US$ 4.942.000.000 |
| Netto schuldemissie | US$ 1.343.000.000 |
| Aandeleninkoop | US$ 3.000.000.000 |
| Betaalde dividenden | US$ 3.131.000.000 |
| Overige financieringsactiviteiten | US$ 154.000.000 |
| Eindstand liquide middelen | US$ 4.121.000.000 |
| Investeringskasstroom | US$ -1.977.000.000 |
| Financieringskasstroom | US$ -4.942.000.000 |
Bron: SEC EDGAR · Ingediend 2026-01-29 · SEC EDGAR
| Omzet per operationeel segment | Omzet | Aandeel | j-o-j |
|---|---|---|---|
| Aeronautics | US$ 30,3 mld. | 40,3% | 5,7% |
| Rotary And Mission Systems | US$ 17,3 mld. | 23,1% | 0,3% |
| Missiles And Fire Control | US$ 14,5 mld. | 19,3% | 13,9% |
| Space | US$ 13 mld. | 17,4% | 4,4% |
Bron: SEC EDGAR · Ingediend 2026-01-29 · SEC EDGAR
| Omzet per regio | Omzet | Aandeel | j-o-j |
|---|---|---|---|
| United States | US$ 53,7 mld. | 71,6% | 2,2% |
| Europe | US$ 8,8 mld. | 11,7% | 14,1% |
| Asia Pacific | US$ 7,8 mld. | 10,4% | 25,2% |
| Middle East | US$ 2,9 mld. | 3,8% | -6,9% |
| Other Region | US$ 1,9 mld. | 2,5% | 25,4% |
Financiële momentopname gebruikt in de analyse van 2026-09-29.
| Periode | Omzet | EBITDA | Nettowinst | Operationele kasstroom | Vrije kasstroom | Investeringen | Afschrijvingen en amortisatie | Aandelenbeloning | Aandeleninkoop | Betaalde dividenden | Netto schuldemissie | Investeringskasstroom | Financieringskasstroom | Beginstand liquide middelen | Eindstand liquide middelen | Kas en beleggingen | Totale schuld | Operationele marge | ROIC | WACC | ROIC−WACC-spread |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2016-12-31 | US$ 47,3 mld. | US$ 6,6 mld. | US$ 5,2 mld. | US$ 5,2 mld. | US$ 4,1 mld. | US$ 1,1 mld. | US$ 1,2 mld. | US$ 149 mln. | US$ 2,1 mld. | US$ 2 mld. | — | -US$ 985 mln. | -US$ 3,5 mld. | — | US$ 1,8 mld. | US$ 1,8 mld. | US$ 14,3 mld. | 12,5% | — | 5,2% | — |
| 2017-12-31 | US$ 50 mld. | US$ 7,1 mld. | US$ 2 mld. | US$ 6,5 mld. | US$ 5,3 mld. | US$ 1,2 mld. | US$ 1,2 mld. | US$ 158 mln. | US$ 2 mld. | US$ 2,2 mld. | — | -US$ 1,1 mld. | -US$ 4,3 mld. | US$ 1,8 mld. | US$ 2,9 mld. | US$ 2,9 mld. | US$ 14,3 mld. | 13,5% | — | 5,0% | — |
| 2018-12-31 | US$ 53,8 mld. | US$ 7,7 mld. | US$ 5 mld. | US$ 3,1 mld. | US$ 1,9 mld. | US$ 1,3 mld. | US$ 1,2 mld. | US$ 173 mln. | US$ 1,5 mld. | US$ 2,3 mld. | — | -US$ 1,1 mld. | -US$ 4,2 mld. | US$ 2,9 mld. | US$ 772 mln. | US$ 772 mln. | US$ 14,1 mld. | 13,6% | — | 5,9% | — |
| 2019-12-31 | US$ 59,8 mld. | US$ 9,1 mld. | US$ 6,2 mld. | US$ 7,3 mld. | US$ 5,8 mld. | US$ 1,5 mld. | US$ 906 mln. | US$ 189 mln. | US$ 1,2 mld. | US$ 2,6 mld. | — | -US$ 1,2 mld. | -US$ 5,3 mld. | US$ 772 mln. | US$ 1,5 mld. | US$ 1,5 mld. | US$ 12,7 mld. | 14,3% | — | 5,5% | — |
| 2020-12-31 | US$ 65,4 mld. | US$ 10,1 mld. | US$ 6,8 mld. | US$ 8,2 mld. | US$ 6,4 mld. | US$ 1,8 mld. | US$ 1 mld. | US$ 221 mln. | US$ 1,1 mld. | US$ 2,8 mld. | — | -US$ 2 mld. | -US$ 4,5 mld. | US$ 1,5 mld. | US$ 3,2 mld. | US$ 3,2 mld. | US$ 12,2 mld. | 13,2% | — | 4,1% | — |
| 2021-12-31 | US$ 67 mld. | US$ 9,5 mld. | US$ 6,3 mld. | US$ 9,2 mld. | US$ 7,7 mld. | US$ 1,5 mld. | US$ 1,4 mld. | US$ 227 mln. | US$ 4,1 mld. | US$ 2,9 mld. | — | -US$ 1,2 mld. | -US$ 7,6 mld. | US$ 3,2 mld. | US$ 3,6 mld. | US$ 3,6 mld. | US$ 11,7 mld. | 13,6% | — | 4,6% | — |
| 2022-12-31 | US$ 66 mld. | US$ 8,7 mld. | US$ 5,7 mld. | US$ 7,8 mld. | US$ 6,1 mld. | US$ 1,7 mld. | US$ 1,4 mld. | US$ 238 mln. | US$ 7,9 mld. | US$ 3 mld. | US$ 4 mld. | -US$ 1,8 mld. | -US$ 7,1 mld. | US$ 3,6 mld. | US$ 2,5 mld. | US$ 2,5 mld. | US$ 15,5 mld. | 12,7% | — | 6,6% | — |
| 2023-12-31 | US$ 67,6 mld. | US$ 8,5 mld. | US$ 6,9 mld. | US$ 7,9 mld. | US$ 6,2 mld. | US$ 1,7 mld. | US$ 1,4 mld. | US$ 265 mln. | US$ 6 mld. | US$ 3,1 mld. | US$ 1,9 mld. | -US$ 1,7 mld. | -US$ 7,3 mld. | US$ 2,5 mld. | US$ 1,4 mld. | US$ 3,9 mld. | US$ 17,5 mld. | 12,6% | — | 6,3% | — |
| 2024-12-31 | US$ 71 mld. | US$ 8,8 mld. | US$ 5,3 mld. | US$ 7 mld. | US$ 5,3 mld. | US$ 1,7 mld. | US$ 1,6 mld. | US$ 277 mln. | US$ 3,7 mld. | US$ 3,1 mld. | US$ 2,8 mld. | -US$ 1,8 mld. | -US$ 4,1 mld. | US$ 1,4 mld. | US$ 2,5 mld. | US$ 2,5 mld. | US$ 20,3 mld. | 9,9% | — | 6,7% | — |
| 2025-12-31 | US$ 75 mld. | US$ 7,8 mld. | US$ 5 mld. | US$ 8,6 mld. | US$ 6,9 mld. | US$ 1,6 mld. | US$ 1,7 mld. | US$ 304 mln. | US$ 3 mld. | US$ 3,1 mld. | US$ 1,3 mld. | -US$ 2 mld. | -US$ 4,9 mld. | US$ 2,5 mld. | US$ 4,1 mld. | US$ 4,1 mld. | US$ 21,7 mld. | 10,3% | — | 5,9% | — |
Lockheed Martin Corporation (LMT) trades at 16.2x forward earnings against a peer median of 20.6x. Its EV/EBITDA of 14.1x compares with a peer median of 15.1x. The comparison uses 4 peers: Howmet Aerospace Inc., Union Pacific Corporation, Norfolk Southern Corporation and FedEx Corporation, as of 2026-09-29.
The broader aerospace and defense industry displays capital-light characteristics with an industry capex-to-revenue benchmark of 0.008 (0.80%) and capex-to-depreciation of 0.95 (95%). Lockheed Martin is currently in a targeted expansionary phase, ramping FY2026 CapEx to $2.0B-$2.4B from $1.65B in FY2025 (2.20% of sales). This investment cycle is focused on doubling missile production capacity at Camden and modernizing automated assembly lines ahead of contracted allied demand,.57
In a synchronized global defense upcycle, escalating geopolitical tensions drive NATO European allies ($8.81B FY2025 revenue) and Indo-Pacific partners ($7.82B FY2025 revenue) to accelerate procurement across F-35 airframes, PAC-3 MSE missiles, and HIMARS launchers. Missiles & Fire Control achieves double-digit top-line growth ($16.5B-$16.9B guided in FY2026) and operating margins exceed mid-teens, propelling consolidated revenue toward consensus FY2027 estimates ($85.55B) and driving FCF above $7.5B.
In a defense downturn or budget contraction cycle, congressional sequester or prolonged Continuing Resolutions freeze domestic procurement authorizations ($53.71B US revenue in FY2025). Sub-tier supply chain bottlenecks strand work-in-process inventory, while FAR recosting rules and fixed-price contract reach-forward losses compress margins toward 9.5%-9.8%,. Free cash flow faces pressure from rising working capital and facility capex, slowing share retirements.
Lockheed Martin is positioned as the tier-1 prime contractor of choice across the Western defense apparatus. The company's industry-cycle positioning is demand-led and evidence-limited with respect to sub-tier supplier lead times and raw material bottlenecks. However, with $75.05B in FY2025 revenue and an operating margin of 10.30% (above the industry average operating margin benchmark of 8.70%), Lockheed Martin maintains superior scale, balance-sheet liquidity ($4.12B cash), and customer alignment relative to secondary suppliers and diversified industrial peers.7
A recommended portfolio weighting of 4-6% is supported by Lockheed Martin's wide economic moat (moat score 9.0), stable mature dividend compounder archetype, 35.7% upside to fair value midpoint ($696.60), exceptional free cash flow conversion exceeding 100% of net income ($6.91B in FY2025), and robust balance-sheet liquidity ($4.12B cash). The defensive character of multi-year defense backlogs provides low equity volatility (raw beta 0.0829) and resilient portfolio ballast.267
Risk management is grounded in monitoring program-level contract structures and legislative appropriations. While Lockheed Martin operates with substantial revenue visibility ($75.05B FY2025 sales), exposure to US federal government budgets ($53.71B, or 71.6% of sales) requires active tracking of congressional authorization cycles. Position sizing is capped at 6.0% of total equity assets to control single-counterparty exposure. Balance-sheet leverage is conservative, with total debt of $20.54B supported by $8.56B in operating cash flow and $4.12B in cash reserves. Fixed-price contract exposure is actively controlled by management refusing uncompensated R&D risk without commercial-style cost sharing.
Lockheed Martin trades at a forward P/E of 16.16x, representing a 26.3% discount to our intrinsic fair value of $696.60 and sitting below broader defense and high-quality industrial peer multiples (such as HWM forward P/E of 35.59x). The margin of safety is reinforced by $75.05B in FY2025 revenue and sole-source defense program contracts that insulate against commercial economic cyclicality.47
Lockheed Martin provides exceptional cash flow safety as an archetypal mature dividend compounder. FY2025 free cash flow reached $6.91B and FY2026 free cash flow is guided to $7.0B-$7.2B, providing more than 2x coverage for shareholder distributions. Steady anti-dilutive share repurchases (shares reduced to 230.79M) further enhance per-share dividend growth sustainability.456
Multi-decade structural re-armament trends in Europe ($8.81B FY2025 revenue) and Asia-Pacific ($7.82B FY2025 revenue) ensure durable top-line expansion toward guided FY2026 revenue of $79.75B-$81.75B and consensus FY2027 revenue of $85.55B. Entrenched wide moat barriers and high ROIC exceeding cost of capital (WACC 6.86%) make LMT a core portfolio holding.1258
Lockheed Martin Corporation is rated Strong Buy based on an intrinsic fair value of $696.60 per share, offering 35.7% upside relative to $513.35 as of September 29, 2026. The company combines unmatched program-of-record visibility in Aeronautics with high-margin expansion in Missiles & Fire Control and disciplined capital return.458
With shares trading at 16.16x forward earnings, valuation remains highly attractive against peer industrial averages and historical prime multiples. Strong cash conversion ($7.0B-$7.2B guided FY2026 free cash flow) provides downside protection and funds reliable dividend growth and ongoing share repurchases.
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The records this analysis drew on, as they stood when it was run.
Not every cited input appears here: internal calculations and intermediate model outputs have no external record, and some citations could not be matched to one.
The downside case reflects US Department of Defense budgetary friction, congressional Continuing Resolutions, and domestic procurement caps that limit top-line growth across Aeronautics and Missiles & Fire Control ($53.71B US revenue in FY2025). Sub-tier supply chain bottlenecks in rocket motors restrict delivery cadence, while FAR recosting and fixed-price development reach-forward losses depress operating margins to ~9.8% (matching FY2024 levels). Working capital absorption from inventory ramp and $2.0B-$2.4B CapEx pressure free cash flow, curtailing share buybacks and holding EPS growth to 6.5%, driving intrinsic valuation toward the downside boundary of $438.38.
Normalized cycle cost of equity is 9.0844% compared to computed moderate Ke of 7.1630%. Raw beta is depressed at 0.0829 while sector beta is 0.9455. A 200 bps increase in discount rates aligns with normalized cycle equity costs, substantially lowering present value multiples.2
The US government generates $53.71B (71.6%) of FY2025 revenue. Base case models 7.6% growth in FY2026 fading to 2.7% by FY2030. A 5 pp deceleration pushes revenue growth negative in outer forecast years, stranding high-rate manufacturing capacity.58
Current forward P/E is 16.16x and terminal P/E is modeled at 16.0x. Peer FDX trades at 13.74x forward P/E, and the bear scenario models 13.5x. Multiple contraction to 12.8x removes growth premiums embedded in terminal valuation.34
F-35 lot delivery pauses, supply chain avionics bottlenecks, or congressional procurement caps curtailing annual production cadence.
Huidig:$30.26B in FY2025; FY2026 guided to $31.7B-$32.7B
Waarschuwing als< $31.00B in FY2026 annual revenue
Foreign Military Sales approval delays, export licensing friction, or allied budget reallocation away from US defense prime programs.
Huidig:$16.62B in FY2025 ($8.81B Europe + $7.82B Asia-Pacific)
Waarschuwing als< $16.00B in FY2026 combined annual revenue
Working capital absorption from inventory ramp or CapEx overrun above the guided $2.0B-$2.4B range, constraining share repurchases and dividend compounding.
Huidig:$6.91B in FY2025; FY2026 guided to $7.0B-$7.2B
Waarschuwing als< $5.50B in FY2026 annual free cash flow
Sub-tier rocket motor supply bottlenecks and early booking dilution on munitions production ramps eroding segment profitability.
Huidig:13.76% in FY2025 ($1.99B operating profit on $14.45B sales,); guided to mid-teens in FY2026
Waarschuwing als< 12.00% across trailing twelve months
| Concentration of revenue with the US federal government ($53.71B, or 71.6% of FY2025 sales), exposing top-line growth to congressional budget caps, sequester, or Continuing Resolutions. | medium | 24-36 months | Expanding allied international procurement across Europe ($8.81B FY2025 revenue) and Asia-Pacific ($7.82B FY2025 revenue) to diversify revenue beyond domestic appropriations.8 |
| Solid rocket motor and critical electronic sub-tier component shortages causing production bottlenecks and early booking margin dilution on rapid munitions ramps. | low | 12-18 months | Stepping up FY2026 capital expenditures to $2.0B-$2.4B to expand internal tooling, leasing strategic facilities, and securing multiyear procurement frameworks.5 |
Under the moderate discount rate, US$ 117 comes from forecast-period earnings and US$ 621 from the long-term value, totaling US$ 738.
Project EPS through the explicit advantage period, fade growth as competition catches up, and discount the full stream at cost of equity.
Apply a terminal P/E to the dated forward EPS path, then discount that future share value back to the analysis date.
Convert the revenue and margin path into after-tax free cash flow, discount the annual per-share amounts and terminal value at WACC, then adjust for signed net debt per current share.
Add depreciation to net income, subtract maintenance capex, divide by diluted shares, and apply a normalized valuation multiple.
Value each distinct segment, subtract corporate overhead and net debt, add probability-weighted optionality, and divide by diluted shares.
Solve for the growth rate that makes the model value equal the report-date share price.
Multiply the peer median PEG by this stock's forecast growth to derive an implied forward P/E, then apply it to forward EPS.
Project revenue, apply a terminal EV/revenue multiple, discount enterprise value, subtract net debt, and divide by diluted shares.
Discount the explicit dividend path and its Gordon-growth terminal value at cost of equity.
The upside case models accelerated allied re-armament across NATO European allies ($8.81B FY2025 revenue) and Indo-Pacific partners ($7.82B FY2025 revenue), alongside rapid high-rate munitions capacity ramp at Missiles & Fire Control ($16.5B-$16.9B guided FY2026 sales). F-35 global fleet flight hours compound rapidly, lifting high-margin depot sustainment profits and driving consolidated operating margins toward 12.0%. Free cash flow conversion exceeds 110% of net income, enabling accelerated share count reductions and compounding EPS at 16.5% annually, supporting an intrinsic upside valuation of $963.76 per share.58
MFC is the highest-margin operating division ($1.99B operating profit in FY2025); securing multiyear procurement frameworks protects against early booking dilution and solidifies operating leverage.8
International re-armament under NATO commitments and Pacific deterrence pacts represents the fastest-growing demand vector, diversifying exposure away from domestic budget ceilings.8
High cash conversion funds dividend compounding ($13.80 annual dividend) and anti-dilutive share repurchases; must absorb FY2026 CapEx expansion to $2.0B-$2.4B.5
Fixed-price contract reach-forward losses or statutory repricing represent the primary structural threat to consolidated operating margin normalization.
| $89.51B |
| $92.68B |
| $95.20B |
| Revenue growth | 7.6% | 5.9% | 4.6% | 3.6% | 2.7% |
| Operating margin | 10.7% | 10.8% | 11.1% | 11.2% | 11.2% |
| Operating income | $8.60B | $9.27B | $9.92B | $10.40B | $10.69B |
| Tax rate | 14.7% | 15.0% | 15.5% | 16.0% | 16.0% |
| NOPAT | $7.34B | $7.88B | $8.38B | $8.73B | $8.98B |
| Reinvestment | $1.61B | $1.58B | $1.51B | $1.40B | $1.35B |
| Reinvestment rate (of NOPAT) | 22.0% | 20.0% | 18.0% | 16.0% | 15.0% |
| Free cash flow to firm | $5.72B | $6.31B | $6.87B | $7.34B | $7.63B |
| Aeronautics revenue | $32.56B | $34.49B | $36.09B | $37.37B | $38.39B |
| Rotary and Mission Systems revenue | $18.63B | $19.73B | $20.65B | $21.38B | $21.96B |
| Missiles and Fire Control revenue | $15.54B | $16.47B | $17.23B | $17.84B | $18.33B |
| Space revenue | $14.02B | $14.85B | $15.54B | $16.09B | $16.53B |
| Terminal growth | 2.5% | 2.5% | 2.5% | 2.5% | 2.5% |
Lockheed Martin executes a highly disciplined capital allocation framework characteristic of a mature dividend compounder. Low capital intensity (historical CapEx of $1.65B, or 2.2% of FY2025 revenue,) enables management to return the vast majority of operating cash flow to shareholders. Even during the FY2026 munitions capacity expansion, which steps up CapEx to $2.0B-$2.4B, free cash flow guidance of $7.0B-$7.2B comfortably funds regular dividend payments ($13.80 annual dividend per share) and substantial share repurchases. Total debt of $20.54B is well-laddered with a pre-tax cost of debt of 5.99% and a low debt weight of 14.77% against a market cap of $118.48B, ensuring strong balance-sheet flexibility.
Consolidated operating income was $7.73B on $75.05B revenue in FY2025 (10.30% operating margin),, after hitting a cyclical trough of 9.87% in FY2024. FY2026 guidance calls for segment operating profit of $8.5B-$8.7B on sales of $79.75B-$81.75B.
Operating margins have inflected positively toward 10.65% in FY2026 and 10.84% in FY2027, confirming that initial munitions production ramp dilutions are stepping up into mature profit-booking milestones.
Free cash flow was $6.91B in FY2025 from $8.56B in operating cash flow, with FY2026 FCF guidance raised to $7.0B-$7.2B despite an increase in capital spending to $2.0B-$2.4B.
Lockheed Martin converts over 100% of GAAP net income into free cash flow, insulating dividend distributions and buybacks from external credit market conditions.
Diluted average shares fell from 233.50M in FY2025 to 230.79M shares outstanding as of September 29, 2026, driving consensus EPS from $21.49 in FY2025 toward $30.48 in FY2026 and $32.76 in FY2027.
Disciplined annual share count reductions of 1.0% to 1.5% amplify revenue growth, compounding EPS at an annual rate above top-line expansion across the forecast horizon.
| Marge |
|---|
| LMT | Lockheed Martin Corporation | $119.6B | 16.2x | 1.5x | 14.1x | 89.2% | — |
| HWM | Howmet Aerospace Inc. | $91.7B | 35.6x | 10.1x | 34.1x | 34.7% | 28.5% |
| UNP | Union Pacific Corporation | $162.4B | 19.3x | 6.4x | 14.9x | 39.7% | 41.0% |
| NSC | Norfolk Southern Corporation | $70.2B | 21.8x | 5.6x | 15.3x | 17.0% | 35.3% |
| FDX | FedEx Corporation | $67.8B | 13.7x | 0.7x | 8.3x | 14.8% | 11.1% |
| Fifth-Generation Fighter Fleet Transition and Multi-Decade Sustainment | positive | Global air forces are retiring legacy fourth-generation fleets in favor of fifth-generation stealth fighters, where the F-35 is the sole Western aircraft in high-rate production, guaranteeing high-visibility production and recurring depot sustainment through the 2070s. |
| Defense Acquisition Regulation and Cost-Plus Contract Scrutiny | negative | Statutory Federal Acquisition Regulation requirements can force repricing of contracts if contractor investments in automation lower unit production costs, creating friction on internal capital deployment and margin realization. |
| Below the low end of sell-side consensus targets ($503.00), offering elevated margin of safety against mature prime cash generation. |
| $475.00 - $485.00 | Complete full position allocation (remaining 15% of target allocation) on macro or defense sector sell-offs. | Represents deep valuation support close to the conservative dividend discount model floor ($338.88) and owner earnings anchor ($350.45). |
| Segment operating margin < 13.0% across trailing twelve months (relative to guided mid-teens baseline) |
| Re-underwrite contract booking rate assumptions and investigate potential fixed-price reach-forward loss provisions. |
| Operating cash flow and full-year free cash flow realization | Full-year free cash flow tracking < $6.50B against guided $7.0B-$7.2B range | Examine working capital inventory build and capex discipline; evaluate whether share repurchase pace can be sustained.7 |
| Combined international revenue trajectory in Europe and Asia-Pacific | Trailing twelve-month combined European and Asia-Pacific sales < $16.00B, | Assess Foreign Military Sales approval timelines and NATO defense budget execution cadence. |
