Lockheed Martin (LMT)
Lockheed’s strategy of snapping up logistics and government services companies seems to be paying off. In September, Lockheed won a 10-year Army-focused vehicle maintenance contract worth up to $5.6 billion. Yesterday, Lockheed announced they won a similarly lucrative contract to supply U.S. military commandos with logistics support – the contract was previously considered one of L-3 Communication’s most prestigious lines of business.
Lockheed and defense companies in general, have been hit hard in recent weeks due to concerns of a U.S. defense-budget squeeze. More than 80 percent of Lockheed’s revenues come from the U.S. government. Trading at just 8.5 times 2009 EPS estimates (the S&P 500 trades at 11.6 times forward earnings), some of the discount is reasonable in the face of general uncertainty, but the market seems to be overlooking the stability of a U.S. defense budget slated to grow 4 percent in fiscal 2010.
Weapons and war equipment are likely to be cut first from the budget, thus the future of Lockheed’s F-22 fighter jet tops investors’ list of concerns. The program contributes about $2.8 billion in annual revenue, but is only a fraction of the company’s $43 billion 2008 sales. The other program in danger of cuts is the VH-71 presidential helicopter program, but this no-margin program is immaterial to Lockheed’s bottom line.
Longer-term, Lockheed’s F-35, known as the Joint Strike Fighter, should be a key growth driver that more than replaces F-22 revenues. This plane is in the preproduction phase and is expected to replace eight different aircraft types for the U.S. Air Force, Navy and Marine Corps, as well as eight other nations.
Lockheed is poised to generate $3 billion-plus in free cash flow in 2009 and has two years of growth locked in with its $81 billion backlog. Management is also returning value to shareholders by recently authorizing a $2 billion buyback and paying a secure dividend that is yielding 3.8 percent.
Wal-Mart Stores (WMT) +2.60%
Wal-Mart reported February sales growth that outpaced its forecast after consumers battered by unemployment bought more groceries.
Same-store sales in the U.S. advanced a whopping 5.1 percent last month, more than double analysts’ estimates, helped by an increase in the number of customers. The company predicts sales will rise 1 percent to 3 percent in the quarter ending May 1.
Gasoline prices have retreated from a record high in July, spurring more visits to Wal-Mart by people staying home for food and entertainment. February’s results were primarily driven by the grocery, entertainment and health-and-wellness segments.
Quick Hits
- Wells Fargo, BofA Loan Values Are a Scary Sight
- Concerns About GE’s Finance Arm ‘Overdone’
- Hewlett-Packard (HPQ) CEO Says Demand Won’t Improve in 2009
Peter Lazaroff, Junior Analyst
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