Why Is Lockheed Martin Corporation (LMT) An Undervalued Aerospace Stock to Buy According to Hedge Funds?
Monday, Dec 9, 2024 6:41 pm ET
In the dynamic world of aerospace and defense, Lockheed Martin Corporation (LMT) stands out as an undervalued stock with significant potential, according to hedge funds. With a forward P/E ratio of 18.62 and 58 hedge funds holding stakes in the company, LMT presents an attractive investment opportunity. This article explores the factors contributing to LMT's undervalued status and its appeal to hedge funds.

Lockheed Martin's strong financial performance and dividend growth are key factors in its undervalued status. In Q3 2024, LMT reported net sales of $17.1 billion, up 1.2% year-over-year, driven by robust performances from the Missiles and Fire Control, and Rotary and Mission Systems segments. Net earnings totaled $1.6 billion, translating to an EPS of $6.80 per share, which beat expectations and was seven cents higher than in the same period last year. Additionally, LMT raised its quarterly dividend by 5% to $3.30 per share, marking the 22nd successive year of dividend growth. This consistent financial performance and dividend growth signal a stable and predictable cash flow, contributing to LMT's low forward P/E ratio.
Geopolitical tensions and increased defense spending also play a significant role in Lockheed Martin's undervalued status. With escalating conflicts worldwide, the demand for fighter jets and autonomous aerial vehicles has surged. Lockheed Martin's F-35 fighter jets and autonomous solutions are in high demand, with Taiwan considering a purchase of 60 F-35s. Trump's victory in the 2024 presidential elections also raises hopes for increased defense spending, further boosting LMT's prospects. The company's status as the largest defense contractor in the world, with 96% of its revenue coming from defense-related sales, provides a stable foundation for its valuation.
Lockheed Martin's earnings growth rate has been steady, with a 5-year average of 10.5%. This is higher than the industry average of 7.5% and the S&P 500's 7.2%. Despite this growth, Lockheed Martin's forward P/E ratio of 18.62 is lower than its 5-year average of 20.5 and the industry average of 21. This discrepancy suggests that Lockheed Martin is undervalued, making it an attractive investment opportunity according to hedge funds.
In conclusion, Lockheed Martin Corporation (LMT) is an undervalued aerospace stock with strong financial performance, consistent dividend growth, and a promising outlook driven by geopolitical tensions and increased defense spending. With a low forward P/E ratio and a high number of hedge funds holding stakes in the company, LMT presents an attractive investment opportunity. As the largest defense contractor in the world, Lockheed Martin is well-positioned to capitalize on the growing demand for defense-related products and services, making it a compelling choice for investors seeking undervalued aerospace stocks.