# Lockheed Martin Corp. (NYSE:LMT)

## Dividend Discount Model (DDM)

Intermediate level

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

### Intrinsic Stock Value (Valuation Summary)

Lockheed Martin Corp., dividends per share (DPS) forecast

US\$

Year Value DPSt or Terminal value (TVt) Calculation Present value at 11.80%
0 DPS01 9.00
1 DPS1 17.53 = 9.00 × (1 + 94.82%) 15.68
2 DPS2 30.41 = 17.53 × (1 + 73.41%) 24.33
3 DPS3 46.22 = 30.41 × (1 + 52.01%) 33.08
4 DPS4 60.37 = 46.22 × (1 + 30.61%) 38.64
5 DPS5 65.92 = 60.37 × (1 + 9.20%) 37.74
5 Terminal value (TV5) 2,771.18 = 65.92 × (1 + 9.20%) ÷ (11.80%9.20%) 1,586.62
Intrinsic value of Lockheed Martin Corp.’s common stock (per share) \$1,736.09
Current share price \$378.34

Based on: 10-K (filing date: 2020-02-07).

1 DPS0 = Sum of the last year dividends per share of Lockheed Martin Corp.’s common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

### Required Rate of Return (r)

 Assumptions Rate of return on LT Treasury Composite1 RF 1.43% Expected rate of return on market portfolio2 E(RM) 12.46% Systematic risk of Lockheed Martin Corp.’s common stock βLMT 0.94 Required rate of return on Lockheed Martin Corp.’s common stock3 rLMT 11.80%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

3 rLMT = RF + βLMT [E(RM) – RF]
= 1.43% + 0.94 [12.46%1.43%]
= 11.80%

### Dividend Growth Rate (g)

#### Dividend growth rate (g) implied by PRAT model

Lockheed Martin Corp., PRAT model

Average Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Selected Financial Data (US\$ in millions)
Dividends declared 2,550  2,342  2,157  2,036  1,923
Net earnings 6,230  5,046  2,002  5,302  3,605
Net sales 59,812  53,762  51,048  47,248  46,132
Total assets 47,528  44,876  46,521  47,806  49,128
Stockholders’ equity (deficit) 3,127  1,394  (683) 1,511  3,097
Financial Ratios
Retention rate1 0.59 0.54 -0.08 0.62 0.47
Profit margin2 10.42% 9.39% 3.92% 11.22% 7.81%
Asset turnover3 1.26 1.20 1.10 0.99 0.94
Financial leverage4 15.20 32.19 31.64 15.86
Averages
Retention rate 0.43
Profit margin 8.55%
Asset turnover 1.10
Financial leverage 23.72

Dividend growth rate (g)5 94.82%

Based on: 10-K (filing date: 2020-02-07), 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-24).

2019 Calculations

1 Retention rate = (Net earnings – Dividends declared) ÷ Net earnings
= (6,2302,550) ÷ 6,230 = 0.59

2 Profit margin = 100 × Net earnings ÷ Net sales
= 100 × 6,230 ÷ 59,812 = 10.42%

3 Asset turnover = Net sales ÷ Total assets
= 59,812 ÷ 47,528 = 1.26

4 Financial leverage = Total assets ÷ Stockholders’ equity (deficit)
= 47,528 ÷ 3,127 = 15.20

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.43 × 8.55% × 1.10 × 23.72 = 94.82%

#### Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × (\$378.34 × 11.80%\$9.00) ÷ (\$378.34 + \$9.00) = 9.20%

where:
P0 = current price of share of Lockheed Martin Corp.’s common stock
D0 = the last year dividends per share of Lockheed Martin Corp.’s common stock
r = required rate of return on Lockheed Martin Corp.’s common stock

#### Dividend growth rate (g) forecast

Lockheed Martin Corp., H-model

Year Value gt
1 g1 94.82%
2 g2 73.41%
3 g3 52.01%
4 g4 30.61%
5 and thereafter g5 9.20%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 94.82% + (9.20%94.82%) × (2 – 1) ÷ (5 – 1) = 73.41%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 94.82% + (9.20%94.82%) × (3 – 1) ÷ (5 – 1) = 52.01%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 94.82% + (9.20%94.82%) × (4 – 1) ÷ (5 – 1) = 30.61%