Intrinsic value of Lockheed Martin - LMT

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$280.64

  Intrinsic Value

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  Value-price divergence*

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$280.64

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of LMT stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 80.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  16.56
  19.40
  17.96
  16.66
  15.50
  14.45
  13.50
  12.65
  11.89
  11.20
  10.58
  10.02
  9.52
  9.07
  8.66
  8.29
  7.96
  7.67
  7.40
  7.16
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
  5.68
Revenue, $m
  47,248
  56,414
  66,546
  77,635
  89,667
  102,622
  116,479
  131,217
  146,815
  163,257
  180,527
  198,618
  217,524
  237,247
  257,793
  279,175
  301,411
  324,524
  348,544
  373,504
  399,445
  426,410
  454,450
  483,617
  513,970
  545,572
  578,490
  612,797
  648,568
  685,884
  724,831
Variable operating expenses, $m
 
  49,154
  57,788
  67,239
  77,492
  88,533
  100,342
  112,902
  126,195
  140,207
  154,925
  169,266
  185,378
  202,186
  219,696
  237,918
  256,868
  276,565
  297,035
  318,307
  340,414
  363,395
  387,290
  412,147
  438,014
  464,946
  493,000
  522,237
  552,722
  584,523
  617,714
Fixed operating expenses, $m
 
  361
  370
  379
  389
  398
  408
  418
  429
  440
  451
  462
  473
  485
  497
  510
  523
  536
  549
  563
  577
  591
  606
  621
  637
  653
  669
  686
  703
  720
  738
Total operating expenses, $m
  41,699
  49,515
  58,158
  67,618
  77,881
  88,931
  100,750
  113,320
  126,624
  140,647
  155,376
  169,728
  185,851
  202,671
  220,193
  238,428
  257,391
  277,101
  297,584
  318,870
  340,991
  363,986
  387,896
  412,768
  438,651
  465,599
  493,669
  522,923
  553,425
  585,243
  618,452
Operating income, $m
  5,549
  6,900
  8,388
  10,018
  11,786
  13,691
  15,729
  17,897
  20,191
  22,610
  25,152
  28,890
  31,673
  34,576
  37,600
  40,747
  44,021
  47,423
  50,959
  54,634
  58,454
  62,425
  66,553
  70,849
  75,319
  79,973
  84,821
  89,875
  95,144
  100,641
  106,379
EBITDA, $m
  6,764
  8,540
  10,130
  11,870
  13,759
  15,794
  17,970
  20,285
  22,736
  25,319
  28,033
  30,876
  33,848
  36,948
  40,178
  43,539
  47,035
  50,668
  54,445
  58,370
  62,448
  66,689
  71,098
  75,685
  80,458
  85,429
  90,606
  96,003
  101,630
  107,500
  113,627
Interest expense (income), $m
  0
  500
  608
  919
  1,258
  1,627
  2,024
  2,449
  2,900
  3,378
  3,882
  4,411
  4,966
  5,545
  6,149
  6,779
  7,434
  8,115
  8,824
  9,560
  10,324
  11,119
  11,946
  12,805
  13,699
  14,629
  15,597
  16,606
  17,657
  18,753
  19,896
Earnings before tax, $m
  4,886
  6,400
  7,780
  9,099
  10,528
  12,064
  13,705
  15,448
  17,291
  19,232
  21,270
  24,479
  26,707
  29,031
  31,451
  33,968
  36,587
  39,308
  42,136
  45,075
  48,129
  51,305
  54,608
  58,044
  61,620
  65,344
  69,225
  73,269
  77,487
  81,888
  86,482
Tax expense, $m
  1,133
  1,728
  2,101
  2,457
  2,842
  3,257
  3,700
  4,171
  4,669
  5,193
  5,743
  6,609
  7,211
  7,838
  8,492
  9,171
  9,878
  10,613
  11,377
  12,170
  12,995
  13,852
  14,744
  15,672
  16,637
  17,643
  18,691
  19,783
  20,921
  22,110
  23,350
Net income, $m
  5,302
  4,672
  5,679
  6,642
  7,685
  8,807
  10,004
  11,277
  12,622
  14,039
  15,527
  17,870
  19,496
  21,192
  22,959
  24,797
  26,708
  28,695
  30,759
  32,905
  35,135
  37,453
  39,864
  42,372
  44,983
  47,701
  50,534
  53,486
  56,566
  59,778
  63,132

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,837
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  47,806
  54,878
  64,734
  75,521
  87,225
  99,827
  113,306
  127,643
  142,816
  158,810
  175,610
  193,208
  211,599
  230,785
  250,771
  271,571
  293,201
  315,685
  339,050
  363,331
  388,565
  414,796
  442,072
  470,444
  499,970
  530,712
  562,734
  596,106
  630,903
  667,203
  705,088
Adjusted assets (=assets-cash), $m
  45,969
  54,878
  64,734
  75,521
  87,225
  99,827
  113,306
  127,643
  142,816
  158,810
  175,610
  193,208
  211,599
  230,785
  250,771
  271,571
  293,201
  315,685
  339,050
  363,331
  388,565
  414,796
  442,072
  470,444
  499,970
  530,712
  562,734
  596,106
  630,903
  667,203
  705,088
Revenue / Adjusted assets
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
  1.028
Average production assets, $m
  6,832
  8,180
  9,649
  11,257
  13,002
  14,880
  16,889
  19,026
  21,288
  23,672
  26,176
  28,800
  31,541
  34,401
  37,380
  40,480
  43,705
  47,056
  50,539
  54,158
  57,920
  61,830
  65,895
  70,124
  74,526
  79,108
  83,881
  88,856
  94,042
  99,453
  105,100
Working capital, $m
  2,566
  846
  998
  1,165
  1,345
  1,539
  1,747
  1,968
  2,202
  2,449
  2,708
  2,979
  3,263
  3,559
  3,867
  4,188
  4,521
  4,868
  5,228
  5,603
  5,992
  6,396
  6,817
  7,254
  7,710
  8,184
  8,677
  9,192
  9,729
  10,288
  10,872
Total debt, $m
  14,282
  17,377
  26,247
  35,956
  46,489
  57,831
  69,963
  82,865
  96,522
  110,916
  126,036
  141,874
  158,426
  175,693
  193,681
  212,401
  231,868
  252,104
  273,132
  294,985
  317,696
  341,304
  365,851
  391,387
  417,960
  445,628
  474,447
  504,482
  535,800
  568,469
  602,566
Total liabilities, $m
  46,295
  49,390
  58,260
  67,969
  78,502
  89,844
  101,976
  114,878
  128,535
  142,929
  158,049
  173,887
  190,439
  207,706
  225,694
  244,414
  263,881
  284,117
  305,145
  326,998
  349,709
  373,317
  397,864
  423,400
  449,973
  477,641
  506,460
  536,495
  567,813
  600,482
  634,579
Total equity, $m
  1,511
  5,488
  6,473
  7,552
  8,722
  9,983
  11,331
  12,764
  14,282
  15,881
  17,561
  19,321
  21,160
  23,078
  25,077
  27,157
  29,320
  31,569
  33,905
  36,333
  38,857
  41,480
  44,207
  47,044
  49,997
  53,071
  56,273
  59,611
  63,090
  66,720
  70,509
Total liabilities and equity, $m
  47,806
  54,878
  64,733
  75,521
  87,224
  99,827
  113,307
  127,642
  142,817
  158,810
  175,610
  193,208
  211,599
  230,784
  250,771
  271,571
  293,201
  315,686
  339,050
  363,331
  388,566
  414,797
  442,071
  470,444
  499,970
  530,712
  562,733
  596,106
  630,903
  667,202
  705,088
Debt-to-equity ratio
  9.452
  3.170
  4.050
  4.760
  5.330
  5.790
  6.170
  6.490
  6.760
  6.980
  7.180
  7.340
  7.490
  7.610
  7.720
  7.820
  7.910
  7.990
  8.060
  8.120
  8.180
  8.230
  8.280
  8.320
  8.360
  8.400
  8.430
  8.460
  8.490
  8.520
  8.550
Adjusted equity ratio
  -0.007
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,302
  4,672
  5,679
  6,642
  7,685
  8,807
  10,004
  11,277
  12,622
  14,039
  15,527
  17,870
  19,496
  21,192
  22,959
  24,797
  26,708
  28,695
  30,759
  32,905
  35,135
  37,453
  39,864
  42,372
  44,983
  47,701
  50,534
  53,486
  56,566
  59,778
  63,132
Depreciation, amort., depletion, $m
  1,215
  1,641
  1,742
  1,853
  1,973
  2,103
  2,241
  2,389
  2,545
  2,709
  2,882
  1,986
  2,175
  2,372
  2,578
  2,792
  3,014
  3,245
  3,485
  3,735
  3,994
  4,264
  4,544
  4,836
  5,140
  5,456
  5,785
  6,128
  6,486
  6,859
  7,248
Funds from operations, $m
  5,111
  6,312
  7,421
  8,495
  9,658
  10,909
  12,246
  13,666
  15,167
  16,748
  18,408
  19,856
  21,671
  23,565
  25,537
  27,589
  29,722
  31,940
  34,245
  36,640
  39,129
  41,717
  44,408
  47,208
  50,122
  53,157
  56,319
  59,614
  63,051
  66,637
  70,380
Change in working capital, $m
  -78
  137
  152
  166
  180
  194
  208
  221
  234
  247
  259
  271
  284
  296
  308
  321
  334
  347
  360
  374
  389
  404
  421
  438
  455
  474
  494
  515
  537
  560
  584
Cash from operations, $m
  5,189
  8,985
  7,269
  8,329
  9,478
  10,715
  12,038
  13,445
  14,933
  16,502
  18,149
  19,584
  21,388
  23,269
  25,229
  27,268
  29,389
  31,593
  33,884
  36,265
  38,740
  41,312
  43,988
  46,771
  49,667
  52,683
  55,825
  59,100
  62,515
  66,077
  69,796
Maintenance CAPEX, $m
  0
  -471
  -564
  -665
  -776
  -897
  -1,026
  -1,165
  -1,312
  -1,468
  -1,633
  -1,805
  -1,986
  -2,175
  -2,372
  -2,578
  -2,792
  -3,014
  -3,245
  -3,485
  -3,735
  -3,994
  -4,264
  -4,544
  -4,836
  -5,140
  -5,456
  -5,785
  -6,128
  -6,486
  -6,859
New CAPEX, $m
  -1,063
  -1,348
  -1,469
  -1,608
  -1,745
  -1,878
  -2,009
  -2,137
  -2,262
  -2,384
  -2,504
  -2,623
  -2,741
  -2,860
  -2,979
  -3,100
  -3,224
  -3,351
  -3,483
  -3,619
  -3,761
  -3,910
  -4,066
  -4,229
  -4,401
  -4,582
  -4,773
  -4,974
  -5,187
  -5,411
  -5,647
Cash from investing activities, $m
  -985
  -1,819
  -2,033
  -2,273
  -2,521
  -2,775
  -3,035
  -3,302
  -3,574
  -3,852
  -4,137
  -4,428
  -4,727
  -5,035
  -5,351
  -5,678
  -6,016
  -6,365
  -6,728
  -7,104
  -7,496
  -7,904
  -8,330
  -8,773
  -9,237
  -9,722
  -10,229
  -10,759
  -11,315
  -11,897
  -12,506
Free cash flow, $m
  4,204
  7,166
  5,236
  6,055
  6,957
  7,940
  9,002
  10,143
  11,359
  12,650
  14,013
  15,156
  16,660
  18,234
  19,877
  21,590
  23,373
  25,228
  27,156
  29,161
  31,243
  33,408
  35,658
  37,997
  40,430
  42,961
  45,596
  48,340
  51,200
  54,181
  57,290
Issuance/(repayment) of debt, $m
  -952
  3,095
  8,870
  9,708
  10,534
  11,342
  12,132
  12,903
  13,656
  14,394
  15,120
  15,838
  16,552
  17,267
  17,988
  18,720
  19,467
  20,235
  21,029
  21,853
  22,711
  23,608
  24,548
  25,535
  26,574
  27,667
  28,820
  30,035
  31,317
  32,670
  34,097
Issuance/(repurchase) of shares, $m
  -1,990
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,409
  3,095
  8,870
  9,708
  10,534
  11,342
  12,132
  12,903
  13,656
  14,394
  15,120
  15,838
  16,552
  17,267
  17,988
  18,720
  19,467
  20,235
  21,029
  21,853
  22,711
  23,608
  24,548
  25,535
  26,574
  27,667
  28,820
  30,035
  31,317
  32,670
  34,097
Total cash flow (excl. dividends), $m
  2,795
  10,261
  14,106
  15,764
  17,490
  19,282
  21,134
  23,045
  25,015
  27,044
  29,133
  30,994
  33,212
  35,501
  37,865
  40,309
  42,840
  45,463
  48,185
  51,013
  53,954
  57,016
  60,206
  63,532
  67,003
  70,628
  74,416
  78,375
  82,517
  86,851
  91,387
Retained Cash Flow (-), $m
  1,586
  -5,814
  -986
  -1,079
  -1,170
  -1,260
  -1,348
  -1,434
  -1,517
  -1,599
  -1,680
  -1,760
  -1,839
  -1,919
  -1,999
  -2,080
  -2,163
  -2,248
  -2,337
  -2,428
  -2,523
  -2,623
  -2,728
  -2,837
  -2,953
  -3,074
  -3,202
  -3,337
  -3,480
  -3,630
  -3,789
Prev. year cash balance distribution, $m
 
  1,837
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  6,284
  13,121
  14,685
  16,320
  18,021
  19,786
  21,612
  23,498
  25,445
  27,453
  29,234
  31,373
  33,582
  35,866
  38,229
  40,677
  43,215
  45,849
  48,585
  51,431
  54,393
  57,478
  60,695
  64,051
  67,554
  71,214
  75,038
  79,037
  83,221
  87,598
Discount rate, %
 
  8.50
  8.93
  9.37
  9.84
  10.33
  10.85
  11.39
  11.96
  12.56
  13.19
  13.85
  14.54
  15.26
  16.03
  16.83
  17.67
  18.55
  19.48
  20.46
  21.48
  22.55
  23.68
  24.86
  26.11
  27.41
  28.78
  30.22
  31.73
  33.32
  34.99
PV of cash for distribution, $m
 
  5,792
  11,059
  11,224
  11,212
  11,023
  10,666
  10,157
  9,517
  8,774
  7,955
  7,021
  6,154
  5,297
  4,475
  3,708
  3,011
  2,393
  1,862
  1,415
  1,050
  760
  536
  367
  245
  158
  99
  60
  35
  20
  11
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Lockheed Martin Corporation, a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. It operates through four segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems. The Aeronautics segment offers combat and air mobility aircrafts, unmanned air vehicles, and related technologies. The Missiles and Fire Control segment provides air and missile defense systems; tactical missiles and air-to-ground precision strike weapon systems; logistics; fire control systems; mission operations support, readiness, engineering support, and integration services; manned and unmanned ground vehicles; and energy management solutions. The Rotary and Mission Systems segment offers military and civil helicopters; ship and submarine mission and combat systems; mission systems and sensors for rotary and fixed-wing aircrafts; sea and land-based missile defense systems; radar systems; Littoral combat ships; simulation and training services; and unmanned systems and technologies. It also supports government customers in cybersecurity; and delivers communications, and command and control capabilities through mission solutions for defense applications. In addition, this segment provides military and commercial helicopters; and aftermarket service and support solutions to commercial and military customers. The Space Systems segment offers satellites, strategic and defensive missile systems, and space transportation systems; and classified systems and services in support of national security systems. Lockheed Martin Corporation was founded in 1909 and is headquartered in Bethesda, Maryland.

FINANCIAL RATIOS  of  Lockheed Martin (LMT)

Valuation Ratios
P/E Ratio 15.3
Price to Sales 1.7
Price to Book 53.7
Price to Tangible Book
Price to Cash Flow 15.6
Price to Free Cash Flow 19.7
Growth Rates
Sales Growth Rate 16.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 13.2%
Cap. Spend. - 3 Yr. Gr. Rate 4.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 945.2%
Total Debt to Equity 945.2%
Interest Coverage 0
Management Effectiveness
Return On Assets 10.9%
Ret/ On Assets - 3 Yr. Avg. 9.7%
Return On Total Capital 31.1%
Ret/ On T. Cap. - 3 Yr. Avg. 30.7%
Return On Equity 230.1%
Return On Equity - 3 Yr. Avg. 142.7%
Asset Turnover 1
Profitability Ratios
Gross Margin 10.7%
Gross Margin - 3 Yr. Avg. 11.3%
EBITDA Margin 12.9%
EBITDA Margin - 3 Yr. Avg. 13.4%
Operating Margin 11.7%
Oper. Margin - 3 Yr. Avg. 12%
Pre-Tax Margin 10.3%
Pre-Tax Margin - 3 Yr. Avg. 10.9%
Net Profit Margin 11.2%
Net Profit Margin - 3 Yr. Avg. 9.7%
Effective Tax Rate 23.2%
Eff/ Tax Rate - 3 Yr. Avg. 27%
Payout Ratio 38.6%

LMT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LMT stock intrinsic value calculation we used $47248 million for the last fiscal year's total revenue generated by Lockheed Martin. The default revenue input number comes from 2016 income statement of Lockheed Martin. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LMT stock valuation model: a) initial revenue growth rate of 19.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.5%, whose default value for LMT is calculated based on our internal credit rating of Lockheed Martin, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Lockheed Martin.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LMT stock the variable cost ratio is equal to 87.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $352 million in the base year in the intrinsic value calculation for LMT stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Lockheed Martin.

Corporate tax rate of 27% is the nominal tax rate for Lockheed Martin. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LMT stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LMT are equal to 14.5%.

Life of production assets of 14.5 years is the average useful life of capital assets used in Lockheed Martin operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LMT is equal to 1.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1511 million for Lockheed Martin - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 287.316 million for Lockheed Martin is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Lockheed Martin at the current share price and the inputted number of shares is $80.6 billion.


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COMPANY NEWS

▶ In 3 Years, Lockheed Martin Could Sell 440 F-35s   [Jun-25-17 10:13AM  Motley Fool]
▶ From Lockheed To Exxon, What New Saudi Crown Prince Means For Stocks   [Jun-24-17 10:26AM  Investor's Business Daily]
▶ Lockheed Martin funds advanced space manufacturing lab at MSU Denver   [12:46AM  American City Business Journals]
▶ Why Lockheed May Move F-16 Production To India From Texas   [04:14PM  Investor's Business Daily]
▶ [$$] Defense Companies Finding More Business in Europe   [01:03AM  The Wall Street Journal]
▶ Lockheed Martin's Top Competitors (LMT)   [03:07PM  Investopedia]
▶ Lockheed nears $37bln deal for F-35   [11:45AM  Reuters Videos]
▶ US military plans to order 2,400 F-35's   [12:41AM  CNBC Videos]
▶ Pass/No Pass For Boeing, Banks, China: Investing Action Plan   [Jun-17-17 02:20PM  Investor's Business Daily]
▶ As Boeing, Lockheed Prep For Paris Air Show, Raytheon Gets Upgrade   [Jun-16-17 05:32PM  Investor's Business Daily]
▶ Paris Air Show Preview: This Will Be 'The Big Thing'   [04:10PM  Investor's Business Daily]
▶ Why Lockheed's F-35 Could Stun Crowds At The Paris Air Show   [04:09PM  Investor's Business Daily]
▶ Earnings Calendar, Analyst Estimates And Stocks To Watch   [01:08PM  Investor's Business Daily]
▶ Lockheed Martin, MES Simulation land local contracts totaling $101.5M   [01:05PM  American City Business Journals]
▶ SpaceX Scores Another First With Its Dragon Spaceship   [Jun-10-17 10:13AM  Motley Fool]
▶ How Boeing Stock Reacted to the Qatar Crisis   [09:06AM  Market Realist]
Stock chart of LMT Financial statements of LMT Annual reports of LMT
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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