# Lockheed Martin Corp. (NYSE:LMT)

## Dividend Discount Model (DDM)

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 10.98%
0 DPS01 11.40
1 DPS1 21.46 = 11.40 × (1 + 88.27%) 19.34
2 DPS2 36.12 = 21.46 × (1 + 68.29%) 29.33
3 DPS3 53.56 = 36.12 × (1 + 48.30%) 39.19
4 DPS4 68.73 = 53.56 × (1 + 28.31%) 45.30
5 DPS5 74.45 = 68.73 × (1 + 8.32%) 44.22
5 Terminal value (TV5) 3,031.24 = 74.45 × (1 + 8.32%) ÷ (10.98%8.32%) 1,800.44
Intrinsic value of Lockheed Martin Corp. common stock (per share) \$1,977.82
Current share price \$464.17

Based on: 10-K (reporting date: 2022-12-31).

1 DPS0 = Sum of the last year dividends per share of Lockheed Martin Corp. 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 3.99% Expected rate of return on market portfolio2 E(RM) 13.77% Systematic risk of Lockheed Martin Corp. common stock βLMT 0.71 Required rate of return on Lockheed Martin Corp. common stock3 rLMT 10.98%

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]
= 3.99% + 0.71 [13.77%3.99%]
= 10.98%

### Dividend Growth Rate (g)

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

Lockheed Martin Corp., PRAT model

Average Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US\$ in millions)
Dividends declared 3,010 2,944 2,757 2,550 2,342
Net earnings 5,732 6,315 6,833 6,230 5,046
Net sales 65,984 67,044 65,398 59,812 53,762
Total assets 52,880 50,873 50,710 47,528 44,876
Stockholders’ equity 9,266 10,959 6,015 3,127 1,394
Financial Ratios
Retention rate1 0.47 0.53 0.60 0.59 0.54
Profit margin2 8.69% 9.42% 10.45% 10.42% 9.39%
Asset turnover3 1.25 1.32 1.29 1.26 1.20
Financial leverage4 5.71 4.64 8.43 15.20 32.19
Averages
Retention rate 0.55
Profit margin 9.67%
Asset turnover 1.26
Financial leverage 13.23

Dividend growth rate (g)5 88.27%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

1 Retention rate = (Net earnings – Dividends declared) ÷ Net earnings
= (5,7323,010) ÷ 5,732
= 0.47

2 Profit margin = 100 × Net earnings ÷ Net sales
= 100 × 5,732 ÷ 65,984
= 8.69%

3 Asset turnover = Net sales ÷ Total assets
= 65,984 ÷ 52,880
= 1.25

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 52,880 ÷ 9,266
= 5.71

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.55 × 9.67% × 1.26 × 13.23
= 88.27%

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

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × (\$464.17 × 10.98%\$11.40) ÷ (\$464.17 + \$11.40)
= 8.32%

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

#### Dividend growth rate (g) forecast

Lockheed Martin Corp., H-model

Year Value gt
1 g1 88.27%
2 g2 68.29%
3 g3 48.30%
4 g4 28.31%
5 and thereafter g5 8.32%

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)
= 88.27% + (8.32%88.27%) × (2 – 1) ÷ (5 – 1)
= 68.29%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 88.27% + (8.32%88.27%) × (3 – 1) ÷ (5 – 1)
= 48.30%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 88.27% + (8.32%88.27%) × (4 – 1) ÷ (5 – 1)
= 28.31%