Stock Analysis on Net

Lockheed Martin Corp. (NYSE:LMT)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.


Intrinsic Stock Value (Valuation Summary)

Lockheed Martin Corp., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 8.19%
01 FCFF0 6,940
1 FCFF1 8,141 = 6,940 × (1 + 17.30%) 7,525
2 FCFF2 9,251 = 8,141 × (1 + 13.64%) 7,904
3 FCFF3 10,174 = 9,251 × (1 + 9.98%) 8,034
4 FCFF4 10,817 = 10,174 × (1 + 6.32%) 7,895
5 FCFF5 11,104 = 10,817 × (1 + 2.66%) 7,492
5 Terminal value (TV5) 206,197 = 11,104 × (1 + 2.66%) ÷ (8.19%2.66%) 139,121
Intrinsic value of Lockheed Martin Corp. capital 177,971
Less: Outstanding debt (fair value) 18,500
Intrinsic value of Lockheed Martin Corp. common stock 159,471
 
Intrinsic value of Lockheed Martin Corp. common stock (per share) $659.94
Current share price $456.78

Based on: 10-K (reporting date: 2023-12-31).

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.


Weighted Average Cost of Capital (WACC)

Lockheed Martin Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 110,378 0.86 8.88%
Outstanding debt (fair value) 18,500 0.14 4.08% = 4.80% × (1 – 15.10%)

Based on: 10-K (reporting date: 2023-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 241,643,304 × $456.78
= $110,377,828,401.12

   Outstanding debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (14.50% + 14.20% + 16.40% + 16.40% + 14.00%) ÷ 5
= 15.10%

WACC = 8.19%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Lockheed Martin Corp., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Interest expense 916 623 569 591 653
Net loss from discontinued operations (55)
Net earnings 6,920 5,732 6,315 6,833 6,230
 
Effective income tax rate (EITR)1 14.50% 14.20% 16.40% 16.40% 14.00%
 
Interest expense, after tax2 783 535 476 494 562
Add: Dividends declared 3,051 3,010 2,944 2,757 2,550
Interest expense (after tax) and dividends 3,834 3,545 3,420 3,251 3,112
 
EBIT(1 – EITR)3 7,703 6,267 6,791 7,382 6,792
 
Current portion of long-term debt 168 118 6 500 1,250
Long-term debt, net, excluding current portion 17,291 15,429 11,670 11,669 11,404
Stockholders’ equity 6,835 9,266 10,959 6,015 3,127
Total capital 24,294 24,813 22,635 18,184 15,781
Financial Ratios
Retention rate (RR)4 0.50 0.43 0.50 0.56 0.54
Return on invested capital (ROIC)5 31.71% 25.26% 30.00% 40.60% 43.04%
Averages
RR 0.51
ROIC 34.12%
 
FCFF growth rate (g)6 17.30%

Based on: 10-K (reporting date: 2023-12-31), 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).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 916 × (1 – 14.50%)
= 783

3 EBIT(1 – EITR) = Net earnings – Net loss from discontinued operations + Interest expense, after tax
= 6,9200 + 783
= 7,703

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [7,7033,834] ÷ 7,703
= 0.50

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 7,703 ÷ 24,294
= 31.71%

6 g = RR × ROIC
= 0.51 × 34.12%
= 17.30%


FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (128,878 × 8.19%6,940) ÷ (128,878 + 6,940)
= 2.66%

where:

Total capital, fair value0 = current fair value of Lockheed Martin Corp. debt and equity (US$ in millions)
FCFF0 = the last year Lockheed Martin Corp. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Lockheed Martin Corp. capital


FCFF growth rate (g) forecast

Lockheed Martin Corp., H-model

Microsoft Excel
Year Value gt
1 g1 17.30%
2 g2 13.64%
3 g3 9.98%
4 g4 6.32%
5 and thereafter g5 2.66%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 17.30% + (2.66%17.30%) × (2 – 1) ÷ (5 – 1)
= 13.64%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 17.30% + (2.66%17.30%) × (3 – 1) ÷ (5 – 1)
= 9.98%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 17.30% + (2.66%17.30%) × (4 – 1) ÷ (5 – 1)
= 6.32%