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 on our screens, Lockheed Martin Corp (LMT).
ProfileLockheed 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 jointRecent PerformanceOver the past twelve months, the share price is up 22.31%.
Source: Google FinanceInputs
Forecasted Free Cash Flows (FCFs)
Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 199.67 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 149.20 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 30.90 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 180.10 billionNet DebtNet Debt = Total Debt – Total Cash = 16.17 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 163.93 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $697.57
Conclusion
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%.More By This Author:Knot Theory Meets Private Equity: The Takahashi-Alexander Model Explained
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