As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Lockheed Martin Corp (LMT).
Profile
Lockheed Martin is the world’s largest defense contractor and has dominated the Western market for high-end fighter aircraft since it won the F-35 Joint Strike Fighter program in 2001. Lockheed’s largest segment is aeronautics, which derives upward of two-thirds of its revenue from the F-35. Lockheed’s remaining segments are rotary and mission systems, mainly encompassing the Sikorsky helicopter business; missiles and fire control, which creates missiles and missile defense systems; and space systems, which produces satellites and receives equity income from the United Launch Alliance joint
Recent Performance
Over the past twelve months the share price is up 22.31%.
Source: Google Finance
Inputs
- Discount Rate: 6%
- Terminal Growth Rate: 2%
- WACC: 6%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 6.91 | 6.52 |
| 2025 | 7.13 | 6.35 |
| 2026 | 7.35 | 6.17 |
| 2027 | 7.59 | 6.01 |
| 2028 | 7.83 | 5.85 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 199.67 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 149.20 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 30.90 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 180.10 billion
Net Debt
Net Debt = Total Debt – Total Cash = 16.17 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 163.93 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $697.57
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $697.57 | $551.82 | 20.89% |
Based on the DCF valuation, the stock is undervalued. The DCF value of $697.57 share is higher than the current market price of $551.82. The Margin of Safety is 20.89%.
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