LMT Lockheed Martin

Research status: Primary-source verified through Q2 2026. Valuation basis: $608.68 closing price on 14 August 2026.

Lockheed Martin is primarily a portfolio stabilizer and defence-factor diversifier, not the highest-upside candidate. Q2 sales rose 11% to $20.1B, free cash flow was $2.9B, new orders were $65B and backlog reached a record $230.4B. Management raised 2026 guidance to $79.75–81.75B sales, $29.95–30.65 EPS and $7.0–7.2B free cash flow. At approximately 20.1x midpoint EPS guidance, the valuation is reasonable relative to recent execution but not cheap for a mid-single-digit long-term grower. A starter position can improve portfolio resilience; additions should depend on cash conversion and the absence of renewed programme losses.

Investment case

Lockheed Martin owns long-duration positions in aircraft, missiles and fire control, rotary and mission systems, and space. Its programmes sit inside allied defence architectures, with high certification barriers, classified know-how, installed fleets, sustainment revenue and multi-year procurement cycles. Record backlog and munitions production ramps provide visibility that is largely independent of hyperscaler capital expenditure.

The variant perception is that sustained allied rearmament, missile-defence demand and F-35 production/sustainment can support better growth and cash flow than the market historically assigns to a mature prime contractor. The counterpoint is programme accounting: fixed-price development and classified contracts can create abrupt reach-forward losses, while government budgets and customer approvals control timing.

Verified operating baseline

• Q2 2026 sales: $20.1B, up 11% year over year, with growth across all four segments.
• Q2 GAAP EPS: $7.94; first-half GAAP EPS: $14.38.
• Q2 cash from operations: $3.24B; free cash flow: $2.92B. First-half free cash flow was $2.63B.
• Q2 new orders: approximately $65B; total backlog: $230.4B, up from $193.6B at year-end 2025.
• Missiles and Fire Control Q2 sales grew 19%, led by PAC-3, THAAD and PrSM production ramps; segment margin was 14.5%.
• 2026 company outlook: $79.75–81.75B sales, $29.95–30.65 diluted EPS, and $7.0–7.2B free cash flow.
• Q2 comparisons benefited from the absence of approximately $1.6B of prior-year reach-forward programme losses; normalized progress must be judged beyond this base effect.

Valuation scenarios

PowerFund scenarios based on $608.68 on 14 August 2026; dividends are excluded, making the return cases conservative relative to total return.

24 months

Probability-weighted working value: approximately $722, or 8.9% annualised, before dividends.

60 months

Probability-weighted working value: approximately $925, or 8.7% annualised, before dividends. The value of LMT to PowerFund is lower factor correlation and downside resilience, not a standalone path to doubling NAV.

• Conversion of the $230.4B backlog into sales, margin and cash without new material reach-forward losses.
• PAC-3, THAAD, PrSM and other munitions production ramps sustaining double-digit Missiles and Fire Control growth.
• F-35 production and sustainment deliveries normalizing, with international orders supporting fleet duration.
• Allied defence-budget growth and incremental missile-defence or classified awards.
• Delivery of the raised $7.0–7.2B free-cash-flow outlook and resumption of disciplined repurchases.
• Closing and integration of the proposed Ultra Maritime acquisition without balance-sheet or return dilution.
• Segment margin stability as supply chains and labour capacity expand.

• Programme accounting: fixed-price development and classified contracts can create large, abrupt reach-forward losses.
• Government dependence: appropriations, continuing resolutions, export approvals and procurement priorities can delay awards and cash.
• F-35 concentration: production, sustainment, technical or political changes in the programme can materially affect Aeronautics.
• Execution: munitions ramps require labour, components, supplier capacity and working capital at high quality standards.
• Cash-flow timing: customer advances, milestone receipts, pension and tax timing can make quarterly free cash flow volatile.
• Geopolitical and policy risk: de-escalation or budget reallocation can slow demand even when backlog remains high.
• Acquisition risk: large transactions can divert capital and management attention or reduce returns.
• Opportunity cost: a stabilizing defence prime may lag growth benchmarks during strong technology-led markets.

Warning — investigate and freeze additions

• Backlog declines for two quarters without conversion into proportionate revenue and cash.
• Business-segment operating margin falls below approximately 10.5% or favourable contract adjustments mask weaker underlying execution.
• 2026/2027 free-cash-flow expectations fall below $6.5B or working capital absorbs materially more cash than planned.
• Forward P/E exceeds roughly 22x while expected EPS growth remains mid-single digit or lower.

Reduce — normally trim 25–50%

• Full-year sales, EPS or free-cash-flow guidance is reduced by more than 10%.
• New reach-forward losses aggregate above $1B within twelve months or recur across multiple programmes.
• F-35 deliveries or sustainment economics reset materially below the production plan without offsetting awards.
• Bookings and backlog show broad weakness across at least two segments rather than procurement timing in one programme.
• A major acquisition raises leverage or lowers expected per-share free cash flow without a credible strategic return.

Invalidate — exit unless a documented exception is approved

• Structural loss, cancellation or insourcing of a core franchise causes a greater-than-15% reset to normalized EPS or free-cash-flow power.
• Repeated programme losses demonstrate that contract-estimation and execution controls are unreliable.
• Allied defence demand and U.S. procurement plans enter a multi-year decline that backlog cannot offset.
• Lockheed cannot convert backlog into at least high-single-digit segment margins and durable free cash flow.
• Accounting, controls, sanctions or legal evidence materially undermines reported programme economics.

Lockheed competes with RTX, Northrop Grumman, General Dynamics, Boeing, L3Harris and international primes, but competition is programme-specific. Its advantages include classified intellectual property, certification, installed platforms, long programme lives, sustainment, government relationships and the capital required to deliver at scale.

The moat is strongest after a programme enters production and sustainment; it is weaker during new competitions and fixed-price development. Customer power remains high because national governments control budgets, contracting terms and export approvals. The dossier should therefore track programme profitability and cash conversion, not treat backlog as guaranteed value.

1. Reconcile backlog growth to funded versus unfunded awards, expected delivery years and advance payments.
2. Track F-35 production, sustainment, cash milestones and programme margin separately from other Aeronautics work.
3. Maintain a programme-loss ledger covering classified, helicopter and development contracts; compare initial estimates with subsequent charges.
4. Track MFC capacity, deliveries and margins for PAC-3, THAAD and PrSM against announced production ramps.
5. Model free cash flow after pension, tax, capital expenditure, acquisitions, dividends and repurchases.
6. Refresh scenarios after Q3 2026 and after any material budget, F-35 or Ultra Maritime update.

Next scheduled review: Q3 2026 results and the next material U.S. defence appropriations update.