Lockheed Martin (LMT)
Background
In 1995, companies Lockheed and Martin Marietta would merge together to create one of the best defense and innovation companies in America. Lockheed and Martin Marietta were the second and third largest American defense contractors at the time of the merge. Lockheed Martin continues to make advancements in national security and defense through technological advances and innovation. The company is currently working on technology involving hypersonics, directed energy, and autonomous systems. Lockheed Martin is the defense company of the now and the future (“Our History”).
Ratios
Before I evaluate Lockheed Martin’s financial ratios it is important to note that this industry is an oligopoly. There are 3 companies that make up 99% of the industry’s revenue, therefore I will compare Lockheed’s financial ratios to the other two companies’, Boeing (39.00%)
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I calculated a beta of 0.364013 by finding the covariance of the LMT shares and the S&P 500 and then dividing that by the variance of the S&P 500. Using a 10-year treasury bond’s return as the risk-free rate of return, 3.298% (“U.S. 10 Year Treasury Note”), a realized market return of 8.210% (“S&P 500 Index”), and a beta of 0.364013, Lockheed Martin’s alpha comes out to -0.7679%. I used the rates of the treasury bond and market return as they were on April 5th.
Valuating the stock through the Dividend Discount Model, Lockheed Martin is valued at $437.07. Since LMT shares sold at $487.99 on April 14th, LMT shares are overvalued on the market through this valuation method. Also, using CAPM Lockheed Martin’s expected return is 5.0860%. Therefore, the shares underperformed in comparison to their expected return.
Looking at the S&P 500, the market returned at a rate of 5.7998%. Therefore, showing that the LMT shares performed worse than the market over the 4-month investment