Intrinsic value of Lockheed Martin - LMT

Previous Close

$322.82

  Intrinsic Value

$124.24

stock screener

  Rating & Target

str. sell

-62%

Previous close

$322.82

 
Intrinsic value

$124.24

 
Up/down potential

-62%

 
Rating

str. sell

*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 93.0

 

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
  9.60
  9.14
  8.73
  8.35
  8.02
  7.72
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
Revenue, $m
  47,248
  51,784
  56,517
  61,449
  66,582
  71,920
  77,470
  83,237
  89,230
  95,459
  101,933
  108,664
  115,666
  122,952
  130,537
  138,438
  146,671
  155,255
  164,208
  173,553
  183,309
  193,499
  204,148
  215,280
  226,922
  239,101
  251,845
  265,186
  279,155
  293,785
  309,110
Variable operating expenses, $m
 
  45,207
  49,241
  53,444
  57,818
  62,368
  67,097
  72,012
  77,120
  82,428
  87,945
  92,606
  98,573
  104,782
  111,246
  117,979
  124,996
  132,311
  139,941
  147,905
  156,219
  164,904
  173,979
  183,466
  193,387
  203,766
  214,627
  225,996
  237,901
  250,369
  263,429
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
  45,568
  49,611
  53,823
  58,207
  62,766
  67,505
  72,430
  77,549
  82,868
  88,396
  93,068
  99,046
  105,267
  111,743
  118,489
  125,519
  132,847
  140,490
  148,468
  156,796
  165,495
  174,585
  184,087
  194,024
  204,419
  215,296
  226,682
  238,604
  251,089
  264,167
Operating income, $m
  5,549
  6,216
  6,906
  7,626
  8,375
  9,154
  9,964
  10,806
  11,681
  12,591
  13,537
  15,597
  16,620
  17,685
  18,794
  19,949
  21,153
  22,408
  23,718
  25,085
  26,513
  28,004
  29,563
  31,193
  32,898
  34,682
  36,549
  38,504
  40,551
  42,696
  44,943
EBITDA, $m
  6,764
  7,810
  8,548
  9,316
  10,117
  10,949
  11,815
  12,715
  13,650
  14,622
  15,633
  16,683
  17,777
  18,914
  20,099
  21,333
  22,619
  23,961
  25,360
  26,821
  28,346
  29,939
  31,605
  33,346
  35,168
  37,073
  39,068
  41,156
  43,343
  45,634
  48,034
Interest expense (income), $m
  0
  500
  466
  611
  762
  920
  1,083
  1,253
  1,430
  1,614
  1,805
  2,003
  2,209
  2,424
  2,647
  2,879
  3,122
  3,374
  3,637
  3,911
  4,198
  4,496
  4,809
  5,135
  5,476
  5,833
  6,206
  6,597
  7,005
  7,433
  7,882
Earnings before tax, $m
  4,886
  5,716
  6,440
  7,014
  7,612
  8,234
  8,881
  9,553
  10,251
  10,977
  11,732
  13,594
  14,411
  15,261
  16,147
  17,069
  18,031
  19,034
  20,081
  21,174
  22,315
  23,508
  24,755
  26,058
  27,422
  28,849
  30,343
  31,907
  33,546
  35,262
  37,061
Tax expense, $m
  1,133
  1,543
  1,739
  1,894
  2,055
  2,223
  2,398
  2,579
  2,768
  2,964
  3,168
  3,670
  3,891
  4,120
  4,360
  4,609
  4,868
  5,139
  5,422
  5,717
  6,025
  6,347
  6,684
  7,036
  7,404
  7,789
  8,193
  8,615
  9,057
  9,521
  10,006
Net income, $m
  5,302
  4,172
  4,701
  5,120
  5,557
  6,011
  6,483
  6,973
  7,483
  8,013
  8,565
  9,923
  10,520
  11,141
  11,787
  12,461
  13,163
  13,895
  14,659
  15,457
  16,290
  17,161
  18,071
  19,023
  20,018
  21,060
  22,151
  23,292
  24,488
  25,741
  27,054

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
  50,373
  54,977
  59,775
  64,768
  69,961
  75,360
  80,970
  86,800
  92,859
  99,156
  105,705
  112,516
  119,603
  126,982
  134,667
  142,676
  151,026
  159,736
  168,825
  178,316
  188,229
  198,588
  209,417
  220,741
  232,588
  244,986
  257,963
  271,551
  285,783
  300,691
Adjusted assets (=assets-cash), $m
  45,969
  50,373
  54,977
  59,775
  64,768
  69,961
  75,360
  80,970
  86,800
  92,859
  99,156
  105,705
  112,516
  119,603
  126,982
  134,667
  142,676
  151,026
  159,736
  168,825
  178,316
  188,229
  198,588
  209,417
  220,741
  232,588
  244,986
  257,963
  271,551
  285,783
  300,691
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
  7,509
  8,195
  8,910
  9,654
  10,428
  11,233
  12,069
  12,938
  13,841
  14,780
  15,756
  16,772
  17,828
  18,928
  20,073
  21,267
  22,512
  23,810
  25,165
  26,580
  28,057
  29,601
  31,216
  32,904
  34,670
  36,518
  38,452
  40,477
  42,599
  44,821
Working capital, $m
  2,566
  777
  848
  922
  999
  1,079
  1,162
  1,249
  1,338
  1,432
  1,529
  1,630
  1,735
  1,844
  1,958
  2,077
  2,200
  2,329
  2,463
  2,603
  2,750
  2,902
  3,062
  3,229
  3,404
  3,587
  3,778
  3,978
  4,187
  4,407
  4,637
Total debt, $m
  14,282
  13,323
  17,467
  21,784
  26,278
  30,952
  35,811
  40,860
  46,107
  51,560
  57,228
  63,121
  69,251
  75,630
  82,271
  89,187
  96,395
  103,910
  111,749
  119,930
  128,471
  137,393
  146,716
  156,462
  166,654
  177,316
  188,474
  200,154
  212,383
  225,191
  238,609
Total liabilities, $m
  46,295
  45,336
  49,480
  53,797
  58,291
  62,965
  67,824
  72,873
  78,120
  83,573
  89,241
  95,134
  101,264
  107,643
  114,284
  121,200
  128,408
  135,923
  143,762
  151,943
  160,484
  169,406
  178,729
  188,475
  198,667
  209,329
  220,487
  232,167
  244,396
  257,204
  270,622
Total equity, $m
  1,511
  5,037
  5,498
  5,977
  6,477
  6,996
  7,536
  8,097
  8,680
  9,286
  9,916
  10,570
  11,252
  11,960
  12,698
  13,467
  14,268
  15,103
  15,974
  16,883
  17,832
  18,823
  19,859
  20,942
  22,074
  23,259
  24,499
  25,796
  27,155
  28,578
  30,069
Total liabilities and equity, $m
  47,806
  50,373
  54,978
  59,774
  64,768
  69,961
  75,360
  80,970
  86,800
  92,859
  99,157
  105,704
  112,516
  119,603
  126,982
  134,667
  142,676
  151,026
  159,736
  168,826
  178,316
  188,229
  198,588
  209,417
  220,741
  232,588
  244,986
  257,963
  271,551
  285,782
  300,691
Debt-to-equity ratio
  9.452
  2.640
  3.180
  3.640
  4.060
  4.420
  4.750
  5.050
  5.310
  5.550
  5.770
  5.970
  6.150
  6.320
  6.480
  6.620
  6.760
  6.880
  7.000
  7.100
  7.200
  7.300
  7.390
  7.470
  7.550
  7.620
  7.690
  7.760
  7.820
  7.880
  7.940
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
  4,172
  4,701
  5,120
  5,557
  6,011
  6,483
  6,973
  7,483
  8,013
  8,565
  9,923
  10,520
  11,141
  11,787
  12,461
  13,163
  13,895
  14,659
  15,457
  16,290
  17,161
  18,071
  19,023
  20,018
  21,060
  22,151
  23,292
  24,488
  25,741
  27,054
Depreciation, amort., depletion, $m
  1,215
  1,594
  1,642
  1,691
  1,742
  1,796
  1,851
  1,909
  1,969
  2,031
  2,096
  1,087
  1,157
  1,230
  1,305
  1,384
  1,467
  1,553
  1,642
  1,736
  1,833
  1,935
  2,041
  2,153
  2,269
  2,391
  2,518
  2,652
  2,792
  2,938
  3,091
Funds from operations, $m
  5,111
  5,767
  6,343
  6,811
  7,299
  7,806
  8,334
  8,882
  9,452
  10,044
  10,660
  11,010
  11,676
  12,370
  13,092
  13,845
  14,629
  15,448
  16,301
  17,193
  18,123
  19,096
  20,112
  21,175
  22,287
  23,451
  24,669
  25,944
  27,280
  28,679
  30,146
Change in working capital, $m
  -78
  68
  71
  74
  77
  80
  83
  87
  90
  93
  97
  101
  105
  109
  114
  119
  123
  129
  134
  140
  146
  153
  160
  167
  175
  183
  191
  200
  210
  219
  230
Cash from operations, $m
  5,189
  5,699
  6,272
  6,737
  7,222
  7,726
  8,251
  8,796
  9,362
  9,951
  10,563
  10,909
  11,571
  12,261
  12,979
  13,726
  14,506
  15,319
  16,167
  17,052
  17,977
  18,943
  19,953
  21,008
  22,113
  23,268
  24,478
  25,744
  27,071
  28,460
  29,916
Maintenance CAPEX, $m
  0
  -471
  -518
  -565
  -614
  -666
  -719
  -775
  -832
  -892
  -955
  -1,019
  -1,087
  -1,157
  -1,230
  -1,305
  -1,384
  -1,467
  -1,553
  -1,642
  -1,736
  -1,833
  -1,935
  -2,041
  -2,153
  -2,269
  -2,391
  -2,518
  -2,652
  -2,792
  -2,938
New CAPEX, $m
  -1,063
  -677
  -686
  -715
  -744
  -774
  -805
  -836
  -869
  -903
  -939
  -976
  -1,015
  -1,056
  -1,100
  -1,146
  -1,194
  -1,245
  -1,298
  -1,355
  -1,415
  -1,478
  -1,544
  -1,614
  -1,688
  -1,766
  -1,848
  -1,934
  -2,025
  -2,121
  -2,222
Cash from investing activities, $m
  -985
  -1,148
  -1,204
  -1,280
  -1,358
  -1,440
  -1,524
  -1,611
  -1,701
  -1,795
  -1,894
  -1,995
  -2,102
  -2,213
  -2,330
  -2,451
  -2,578
  -2,712
  -2,851
  -2,997
  -3,151
  -3,311
  -3,479
  -3,655
  -3,841
  -4,035
  -4,239
  -4,452
  -4,677
  -4,913
  -5,160
Free cash flow, $m
  4,204
  4,551
  5,067
  5,457
  5,863
  6,287
  6,727
  7,185
  7,661
  8,156
  8,670
  8,914
  9,470
  10,048
  10,649
  11,276
  11,928
  12,608
  13,316
  14,055
  14,827
  15,632
  16,474
  17,353
  18,272
  19,233
  20,239
  21,291
  22,393
  23,547
  24,756
Issuance/(repayment) of debt, $m
  -952
  -959
  4,144
  4,318
  4,494
  4,674
  4,859
  5,049
  5,247
  5,453
  5,668
  5,893
  6,130
  6,379
  6,641
  6,917
  7,208
  7,515
  7,839
  8,181
  8,541
  8,922
  9,323
  9,746
  10,192
  10,662
  11,158
  11,680
  12,229
  12,808
  13,417
Issuance/(repurchase) of shares, $m
  -1,990
  1,191
  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
  232
  4,144
  4,318
  4,494
  4,674
  4,859
  5,049
  5,247
  5,453
  5,668
  5,893
  6,130
  6,379
  6,641
  6,917
  7,208
  7,515
  7,839
  8,181
  8,541
  8,922
  9,323
  9,746
  10,192
  10,662
  11,158
  11,680
  12,229
  12,808
  13,417
Total cash flow (excl. dividends), $m
  2,795
  4,783
  9,211
  9,775
  10,357
  10,960
  11,585
  12,234
  12,908
  13,608
  14,338
  14,807
  15,600
  16,426
  17,290
  18,192
  19,136
  20,122
  21,155
  22,236
  23,368
  24,554
  25,797
  27,099
  28,464
  29,895
  31,397
  32,971
  34,623
  36,355
  38,173
Retained Cash Flow (-), $m
  1,586
  -5,363
  -460
  -480
  -499
  -519
  -540
  -561
  -583
  -606
  -630
  -655
  -681
  -709
  -738
  -769
  -801
  -835
  -871
  -909
  -949
  -991
  -1,036
  -1,083
  -1,132
  -1,185
  -1,240
  -1,298
  -1,359
  -1,423
  -1,491
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
 
  1,256
  8,751
  9,295
  9,858
  10,441
  11,046
  11,673
  12,325
  13,003
  13,708
  14,152
  14,918
  15,718
  16,552
  17,424
  18,335
  19,287
  20,284
  21,327
  22,419
  23,563
  24,761
  26,016
  27,332
  28,711
  30,157
  31,673
  33,264
  34,932
  36,682
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
 
  1,158
  7,375
  7,105
  6,772
  6,386
  5,954
  5,486
  4,992
  4,484
  3,972
  3,399
  2,926
  2,479
  2,065
  1,690
  1,357
  1,068
  824
  621
  458
  329
  231
  157
  104
  67
  42
  25
  15
  8
  5
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Lockheed Martin Corporation is a security and aerospace company. The Company operates through four segments. Aeronautics segment is engaged in the research, design, development, manufacture, integration, sustainment, support and upgrade of military aircraft, including combat and air mobility aircraft, unmanned air vehicles and related technologies. Missiles and Fire Control segment provides air and missile defense systems; fire control systems; manned and unmanned ground vehicles, and energy management solutions. Rotary and Mission Systems segment provides design, manufacture, service and support for a range of military and civil helicopters; mission systems and sensors for rotary and fixed-wing aircraft; simulation and training services, and unmanned systems and technologies, among others. Space Systems segment is engaged in the research and development, design, engineering and production of satellites, strategic and defensive missile systems and space transportation systems.

FINANCIAL RATIOS  of  Lockheed Martin (LMT)

Valuation Ratios
P/E Ratio 17.6
Price to Sales 2
Price to Book 61.7
Price to Tangible Book
Price to Cash Flow 18
Price to Free Cash Flow 22.6
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. 11.2%
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 9.6% 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 288 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 $93.0 billion.

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COMPANY NEWS

▶ [$$] Lockheed Plans New Supersonic Business Jet   [Dec-15-17 09:39PM  The Wall Street Journal]
▶ Lockheed Martin plans supersonic business jet   [02:15PM  American City Business Journals]
▶ [$$] Lockheed Plans New Supersonic Business Jet   [12:24PM  The Wall Street Journal]
▶ 5 of the biggest local defense deals in 2017 total $10.6B   [02:30PM  American City Business Journals]
▶ The Five Mining Companies To Watch In 2018   [Dec-11-17 07:30PM  Oilprice.com]
▶ [$$] Pentagon Makes New Push to Put a Laser Weapon on a Fighter Jet   [Dec-08-17 11:48PM  The Wall Street Journal]
▶ Lockheed Martin May Be Cooling Its Jets   [10:09AM  TheStreet.com]
▶ Lockheed's F-35: America's Stealthy Missile Defense Shield?   [Dec-05-17 04:22PM  Investor's Business Daily]
▶ Lockheed Martin, DRS Network land $24.4M deals with local work   [04:05PM  American City Business Journals]
▶ Boeings Fighter Jets Face Stiff Competition   [09:03AM  Market Realist]
▶ Lockheed Martin, IAP Worldwide score $78.6M in local defense contracts   [04:15PM  American City Business Journals]
▶ Missed Lockheed, Raytheon Buy Points? Here's A Second Chance   [04:08PM  Investor's Business Daily]
▶ You Should Diversify With These Industrial Dividend Stocks   [Nov-25-17 11:02AM  Simply Wall St.]
▶ Will Congress OK Saudi Orders For Boeing, Raytheon Weapons?   [Nov-24-17 01:10PM  Investor's Business Daily]
▶ Is Raytheon Company a Buy?   [08:23AM  Motley Fool]
▶ Stocks to be thankful for   [Nov-22-17 05:59PM  CNBC Videos]
▶ Lockheed, Marinette Marine chase guided missile frigate program worth up to $15B   [Nov-20-17 03:20PM  American City Business Journals]
▶ F-35s and more: Lockheed Martin, IAP land $62.5M contracts   [11:45AM  American City Business Journals]
▶ Boeing Has 2 Chances to Beat Lockheed   [08:13AM  Motley Fool]
▶ Lockheed, Northrop, General Dynamics land $140M in local contracts; to add 1,000+ jobs   [Nov-17-17 05:15PM  American City Business Journals]
Financial statements 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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