Lockheed Martin Secures a Massive $15.5 Billion Contract for Additional F-35 Fighters. Should Investors Consider Purchasing Shares for 2025?
The F-35 Lightning II, a stealth fighter jet from Lockheed Martin (LMT, down 0.13%), is more than just a product—it's a golden goose. Estimated to bring in an impressive $1 trillion in total lifetime value, it's no surprise that the Pentagon showered Lockheed with generosity just before Christmas. In early December, the Pentagon awarded Lockheed a mammoth contract worth $11.8 billion for 145 F-35 fighter jets, destined for various branches of the U.S. military and its international allies. This order included:
- 48 F-35As for the Air Force
- 16 F-35Bs and 5 F-35Cs for the Marine Corps
- 14 F-35Cs for the Navy
- 15 F-35As and 1 F-35B for Italy (as a non-U.S. partner)
- 39 F-35As and 7 F-35Bs for Japan (an F-35 program partner)
Deliveries for these aircraft are scheduled for completion by June 2027, doling out the $11.8 billion over the ensuing 2.5 years, or about $4.7 billion annually. But Lockheed's good fortune didn't end there; the Pentagon also bestowed two additional contracts on December 23, totaling $3.4 billion and $335.7 million, respectively. These additional contracts covered logistical support, engineering services, and specialized equipment for the F-35 through 2025, amounting to an extra $3.7 billion in spending.
In sum, Lockheed collected a whopping $15.5 billion in new F-35 revenue, with about $8.4 billion of it due in 2025.
What's this mean for Lockheed's profits?
Lockheed Martin, the world's largest defense contractor, boasts an impressive size. But just how significant are these contracts when considering the company's enormous scale?
Given that the additional $8.4 billion for 2025 represents 30% of Lockheed's Aeronautics division's 2023 revenue of $27.8 billion, it's a substantial boost. Furthermore, it amounts to 12.4% of the entire company's total 2023 revenue of $67.6 billion.
Though most of this added revenue is concentrated in 2025, the revenue lifts in 2026 and 2027 will still generate a substantial 6.6% growth over 2023's revenue. This indicates that industry analysts may be underestimating Lockheed's future prosperity.
Worth investing in Lockheed Martin stock in 2025?
Lockheed Martin stock might seem reasonably priced based on its 17x trailing earnings multiple and a slightly steeper price-to-free cash flow ratio. However, analysts project only 3% annual earnings growth over the next five years. Given this tepid forecast, Lockheed's stock seems to be anything but a bargain.
To consider Lockheed an attractive investment, it must demonstrate mid-double-digit earnings growth. Although producing a modest 7% earnings growth with a 2.7% dividend yield may pique investor interest, the stock stays expensive.
However, the wildcard here is Lockheed's ability to snag more F-35 contracts. The more orders it secures, the more probable it is to achieve more impressive earnings growth, making the stock an increasingly enticing investment opportunity.
Enrichment Data:
Overall
The recent F-35 contracts and associated delays and cost overruns are expected to have a significant impact on Lockheed Martin's revenue and earnings growth in the coming years, though with some complexities:
- Revenue Impact:
- Delays and Cost Overruns: The delays in the Technology Refresh 3 (TR-3) upgrade and cost overruns are anticipated to affect Lockheed Martin's aeronautics segment, potentially impacting revenue and profitability. The company estimates delivering between 170 to 190 F-35 aircraft in 2025; these setbacks may reduce the number of deliveries and consequently affect revenue[1][3].
- Segment Performance:
- Aeronautics Segment: The F-35 program accounts for about 30% of Lockheed's revenue. The delays and cost overruns in this program have already led to a 40% drop in operating profit in the fourth quarter of 2024[1]. This indicates the aeronautics segment's performance will be closely monitored and may impact overall revenue growth.
- Investment and Backlog:
- F-35 Investment: Despite the challenges, Lockheed Martin continues to pour large sums into the F-35 program. In 2024, the company invested over $3.3 billion in independent research and development, as well as capital expenditure projects, including significant investments in the F-35[3][4].
- Future Outlook:
- Revenue Growth: Analysts forecast a modest long-term revenue growth rate of approximately 3% over the next five years, considering AI innovation, regulatory adjustments, and continuing challenges in the F-35 program[2].
- Earnings Impact: The company's 2025 profit forecast of $27.00 to $27.30 per share fell short of analysts’ expectations of $27.92, indicating that earnings growth might be affected by F-35 program delays and cost overruns[1].
In brief, while the F-35 program remains a critical driver of Lockheed Martin's revenue, the delays and cost overruns associated with the program are expected to impact both revenue and earnings growth in the coming years. The company's ability to manage these challenges and adapt to evolving technological and regulatory environments will be vital for its future performance.
- Lockheed Martin's recent F-35 contracts are expected to bring in significant amounts of money, with about $8.4 billion due in 2025 alone.
- Investors might consider Lockheed Martin stock as an attractive investment opportunity if the company secures more F-35 contracts, as this could lead to mid-double-digit earnings growth.
- Financially, the F-35 program, which makes up about 30% of Lockheed's revenue, contributes significantly to the company's income.
- In 2024, Lockheed Martin invested heavily in the F-35 program, demonstrating its commitment to the project even amid challenges such as delays and cost overruns.