Lockheed Martin (LMT)

Security and Aerospace company Lockheed Martin (NYSE:LMT) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 8.8% year on year to $18.61 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $74.5 billion at the midpoint. Its GAAP profit of $6.95 per share was 9.3% above analysts’ consensus estimates.

Company Overview

Headquartered in Maryland, Famous for the F-35 aircraft, Lockheed Martin (NYSE:LMT) specializes in defense, space, homeland security, and information technology products.

Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.

Lockheed’s peers and competitors include Boeing (NYSE:BA), Raytheon (NYSE:RTX), General Dynamics (NYSE:GD), and Northrop Grumman (NYSE:NOC) among others.

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Lockheed Martin grew its sales at a sluggish 2.7% compounded annual growth rate. This fell short of our benchmarks and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Lockheed Martin’s annualized revenue growth of 4.1% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Lockheed Martin’s backlog reached $179.1 billion in the latest quarter and averaged 6.8% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for Lockheed Martin’s products and services but raises concerns about capacity constraints.

This quarter, Lockheed Martin grew its revenue by 8.8% year on year, and its $18.61 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 4.3% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its newer products and services will not accelerate its top-line performance yet.

Lockheed Martin has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 11.8%.

Looking at the trend in its profitability, Lockheed Martin’s operating margin decreased by 5.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Lockheed Martin generated an operating margin profit margin of 12.3%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Lockheed Martin, its EPS declined by 5.2% annually over the last five years while its revenue grew by 2.7%. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into Lockheed Martin’s earnings to better understand the drivers of its performance. As we mentioned earlier, Lockheed Martin’s operating margin was flat this quarter but declined by 5.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Lockheed Martin, its two-year annual EPS declines of 19.1% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, Lockheed Martin reported EPS of $6.95, up from $6.80 in the same quarter last year. This print beat analysts’ estimates by 9.3%. Over the next 12 months, Wall Street expects Lockheed Martin’s full-year EPS of $17.91 to grow 58.3%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Lockheed Martin has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.9% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Lockheed Martin’s margin dropped by 1.5 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Lockheed Martin’s free cash flow clocked in at $3.35 billion in Q3, equivalent to a 18% margin. This result was good as its margin was 5.8 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Lockheed Martin hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 34.9%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Lockheed Martin’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Lockheed Martin reported $3.47 billion of cash and $22.19 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $7.26 billion of EBITDA over the last 12 months, we view Lockheed Martin’s 2.6× net-debt-to-EBITDA ratio as safe. We also see its $520 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Lockheed Martin blew past analysts’ backlog expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 3.1% to $521.75 immediately following the results.

Updated: December 4, 2025 at 10:44 PM EST

Are you wondering whether to buy Lockheed Martin or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Lockheed Martin falls short of our quality standards. First off, its revenue growth was weak over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Lockheed Martin’s P/E ratio based on the next 12 months is 16.1x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $528.17 on the company (compared to the current share price of $448.16).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.