TenQ

The Lockheed Martin story

Lockheed Martin is the largest defense contractor, and its central question is whether expanding missile production can turn a record backlog into sustained profits alongside the F-35.

Written from Lockheed Martin's own filings with the SEC, and rewritten when it publishes a new earnings release. Updated 2026-09-30.

  • $518.10share price, last close
  • $119.6Bmarket value
  • 22/36TenQ Score checks passed
  • 3.0%growth a year the price assumes

The story in brief

  • Missiles drive expansion. Missiles and Fire Control sales grew 19% in the quarter to June 2026 as Lockheed Martin increased PAC-3 and THAAD production.
  • Profit comparisons flatter. The earnings recovery in the quarter to June 2026 largely reflected the absence of $1.6 billion in program losses recorded in the quarter to June 2025.
  • Cash timing matters. Free cash flow reached $2.9 billion in the quarter to June 2026, with the $3.0 billion increase primarily reflecting customer receipt timing and lower tax payments.

What drives the business

  • The F-35 is Lockheed Martin's largest program, accounting for 27% of consolidated sales and 67% of Aeronautics sales in 2025 through development, production and sustainment contracts.
  • The business spans Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space, with the US government accounting for 70% of sales in the quarter to June 2026 and most international sales also passing through the Pentagon.
  • The US government's stated objective of procuring 2,456 F-35 aircraft anchors the aircraft business, while modernization, logistics and training support extend its work beyond production.
  • A $35 billion multiyear THAAD interceptor contract with the Missile Defense Agency helped lift new orders to $65 billion and backlog to a record $230 billion at the end of the quarter to June 2026.
  • Sales grew across all segments in the quarter to June 2026, reaching $20.1 billion, with PAC-3 and THAAD production ramps contributing $560 million of additional sales in Missiles and Fire Control.

What the price assumes

At $518.10, the reverse DCF implies that free cash flow after stock pay grows 3.0% a year for ten years, using a 10.2% discount rate.

That compares with delivered growth of 5.4% a year over the last 10 years and the TenQ check's 4.7% bar, which slows the historical record halfway toward 4%.

The cash growth check passes, but the earnings valuation check fails because the earnings multiple of 19.24 exceeds its historical comparison of 14.68.

Value LMT on your own assumptions

What could change the story

  • Government concentration makes funding decisions, changing procurement priorities and contracts that can be terminated for convenience central risks to converting backlog into revenue.
  • Program execution remains uneven: the quarter to June 2026 included unfavorable profit adjustments of $65 million on Heavy Lift and $50 million on Seahawk programs despite the broader earnings recovery.
  • Total debt of $20.5 billion against $3.8 billion in cash and short-term investments accompanies failing TenQ liquidity and leverage checks, with debt to equity at 2.34 compared with 1.07 five years earlier.
  • Revenue growth of 7.2% over the last twelve months and 4.4% a year over the last three years trails the TenQ sector comparison bars of 10.2% and 10.3%, respectively.
  • The announced Ultra Maritime acquisition introduces financing and integration uncertainty, and Lockheed Martin's July 2026 guidance excludes the proposed transaction.

What to watch next

  • Lockheed Martin's July 2026 outlook calls for approximately $79,750 million to $81,750 million in 2026 sales and $8,500 million to $8,700 million in business segment operating profit, making production growth and program adjustments key measures in subsequent releases.
  • The 2026 free cash flow outlook of approximately $7,000 million to $7,200 million needs to be read alongside customer receipts, lower tax payments and capital expenditure guidance of approximately $2,000 million to $2,400 million.
  • Missiles and Fire Control's 14.5% operating margin in the quarter to June 2026 provides a benchmark for whether increased PAC-3 and THAAD production continues to translate into profitable deliveries.

Sources

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