US Air Force Lockheed Martin Missiles: Big contracts at the U.S. Pentagon often give investors hints about which companies might see big profits. This is not always true, but sometimes it happens. That is why one of the latest Pentagon contracts has caught attention. On March 13, the Air Force told Lockheed Martin (LMT -0.18%) to begin making “Lot 23” of the Joint Air to Surface Standoff Missile (JASSM) and “Lot 9” of the Long-Range Anti-Ship Missile (LRASM). The Air Force also wants Lockheed to get ready for more orders in the future.
Ukraine has asked for both these missile types to use in its fight against Russia. At the same time, the Pentagon wants to improve the U.S. military’s ability to strike targets from far away, especially in the Pacific region.
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The Pentagon did not say how many missiles Lockheed Martin will build. A document from the Department of Defense in 2023 shows that past orders have ranged from 550 to 810 JASSM missiles per lot and from 120 to 240 LRASM missiles per lot. One thing we do know is how much the Pentagon will pay: $1.9 billion, reported by The Motley Fool. But that number is just part of a much bigger deal. The Pentagon is actually planning to spend a total of $5.2 billion on these missiles. More orders are expected in the future, which means Lockheed Martin will likely get more money from this contract.
How Much Will This Help Lockheed Martin?
Lockheed Martin made $71 billion in defense business last year, bringing in more than $5.3 billion in profits. So, how much will this new contract help such a big company? The answer is not so simple.
Most years, Lockheed Martin’s missiles and fire control division (MFC) does very well. From 2019 to 2023, this part of the company made $7.8 billion in profit from $58.7 billion in revenue, which is an impressive 13.3% profit margin. But something strange happened at the end of 2024. Lockheed Martin suddenly reported an $804 million loss in this division. The company said it was because of “$1.4 billion in losses on a classified program,” but did not explain further.
The JASSM and LRASM missiles are not part of this secret program because we know their names and details. That means these missile orders could still be profitable for Lockheed Martin. If the MFC division continues to earn a 13.3% profit margin, these contracts should bring in more than $250 million in profit.
Will This Contract Boost Lockheed’s Stock Price?
Even though this sounds like good news, these missile orders are not really adding new money. They are just continuing an existing flow of revenue. Lockheed Martin’s stock price already reflects the company’s value, so this contract does not change much.
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Right now, Lockheed Martin stock trades at 1.5 times its past year’s sales, which is slightly higher than its 20-year average. The price-to-earnings ratio is below 20, which is not cheap considering analysts expect 13% long-term earnings growth and a 3% dividend yield. The company’s free cash flow matches its net income, making its price-to-FCF ratio also 20. These numbers do not make the stock look too expensive, but they also do not make it a great deal.
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