The second quarter of 2021 was defined by the continuing economic recovery from the coronavirus pandemic. Lockheed Martin (NYSE:LMT) has benefited alongside the wider market, with a year-to-date total return of 8.7%.
While returns have trailed the S&P 500 year-to-date return of 15.9%, Lockheed Martin is a blue chip stock that shouldn’t be viewed in the same category as some of the growth stocks that have led the market so far in 2021.
Lockheed Martin continues to be a reliable dividend stock with durable competitive advantages and long-term growth potential. Shares remain attractive for the remainder of 2021.
Quarterly Earnings Review
Lockheed Martin reported first-quarter results on April 20. Net sales increased 4% to $16.26 billion, while diluted GAAP earnings per share increased 8% year-over-year to $6.56. All four business segments again increased net sales.
The Aeronautics segment increased net sales slightly due to higher F-16 production, while revenue grew 5% in Missiles and Fire Control, 10% in Rotary and Mission Systems, and 3% in Space. On the bottom line, share repurchases and lower interest expense helped boost earnings-per-share growth for the period.
Lockheed has seen accelerating momentum in recent weeks, and as a result the company raised guidance for the remainder of 2021. The company now expecting revenue in a range of $67.3 billion to $68.7 billion, and diluted earnings per share of $26.40 to $26.70.
Future Growth Catalysts
Lockheed Martin has a long growth runway ahead. It ended the first quarter with a backlog of $147 billion, driven by increases in Missiles & Fire Control and Space. Such a large project backlog bodes well for the company’s long-term growth.
Recently, Lockheed Martin has picked up multiple incremental wins that will further boost its growth. For example, in the past few weeks alone Lockheed Martin won deals including a $472 million contract from Naval Air Systems Command, and a $736 million Navy modification contract. On June 30th, Lockheed Martin announced another major contract with Naval Air Systems Command, this time in the amount of $1.8 billion.
Perhaps the most important growth catalyst continues to be the $4.6 billion planned acquisition of Aerojet Rocketdyne (NYSE:AJRD). The acquisition will boost Lockheed’s propulsion systems services. Overall, we expect 8% annual earnings-per-share growth for Lockheed over the next five years.
Valuation & Expected Returns
Despite the stock’s solid returns to begin 2021, shares of Lockheed Martin remain attractively valued. Based on the company’s revised full-year forecast, EPS is likely to come in around $26.55 at the midpoint of guidance. This means LMT stock is valued at a price-to-earnings ratio of 14.4, which is too low for a global industry leader with long-term growth.
Our fair value estimate of a P/E ratio of 16 means expansion of the P/E multiple could increase returns by 2.1% per year. When combined with the 8% anticipated EPS growth rate and 2.7% dividend yield, total return potential comes to nearly 13% per year over the next half-decade. Therefore, we still rate Lockheed Martin stock as a buy, even with a decent increase in share price to begin 2021.
Lockheed Martin isn’t the most exciting business to invest in, and LMT stock performance has lagged the broader market to begin 2021. But for long-term investors, Lockheed Martin is an excellent dividend growth stock. The company is a global leader in the aerospace and defense industry, with significant competitive advantages to fuel its long-term growth.
The stock remains attractively priced, with a solid 2.7% dividend yield. And Lockheed Martin will continue to raise its dividend each year at a high rate due to its strong business. We continue to rank Lockheed Martin as a buy.
On the date of publication, Bob Ciura was long LMT stock. He did not have (either directly or indirectly) any positions in the other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ben Reynolds founded Sure Dividend in 2014. Today, Ben continues to run Sure Dividend to help individual investors build high quality income portfolios. Ben graduated Summa Cum Laude from University of Houston with a finance degree. His work through Sure Dividend has appeared on Forbes, Fidelity, Motley Fool, The Street, Yahoo! Finance and more.