Lockheed Martin Valuation -2026

Lockheed Martin (LMT): DCF valuation, October 2026 I value Lockheed at about $478 a share on an FCFF DCF built on Damodaran's Ginzu model. The stock closed at $629.75 on 28 Oct, so it trades at roughly 1.3x my base value. I wouldn't call it badly overvalued, though. If Lockheed keeps earning around 15% on new capital after year 10, instead of dropping to its cost of capital, the value comes to about $637, which is roughly where the stock trades today. Base year I used trailing twelve months to 27 Sep 2026 (FY25 full year plus the first nine months of 2026 from the Q3 10-Q). - Sales: $79.1bn - Operating profit: $9.3bn (11.8% margin) - Backlog: $292bn, after the $52.5bn PAC-3 award. That's about 3.7 years of sales. - Balance sheet: $20.5bn of long-term debt against $6.0bn of cash, plus $3.9bn of accrued pension liabilities. On the growth estimates Street EPS growth is 42.78% for 2026 and 8.31% for 2027. The 2026 figure is mostly recovery from the 2025 program charges, and three quarters of 2026 is already in my base year. So I used 8.31% as year-1 revenue growth. Assumptions - Revenue growth: 8.31% in year 1, then 6% a year in years 2 to 5, fading to the risk-free rate (4.77%) by year 10. - Operating margin: held at 12.5% throughout, which is today's 11.8% with R&D capitalised. - R&D: capitalised over 10 years. Lockheed doesn't break out IR&D in the 10-Q, so part of the history is estimated. It's only about 2.5% of sales and doesn't move the value. - Sales to capital: 2.5. - Cost of capital: 7.99%, moving to 8.69% by year 10. Inputs are: - risk-free rate 4.77% (10Y at 4.99% less the US default spread) - ERP 3.92% (Damodaran, Oct 2026) - beta 0.97 (relevered from the US aerospace/defense industry beta) - Debt: the unfunded pension counts as debt after tax ($2.95bn). Operating leases are about $1.2bn. - Tax rate: 15.6% now, moving to 25% by year 10. - Shares: 232.0m diluted. Valuation | Item | $bn | |---|---| | PV of cash flows, years 1-10 | 57.8 | | PV of terminal value | 71.8 | | Operating assets | 129.7 | | Less debt, leases and pension | (24.7) | | Plus cash | 6.0 | | Equity value | 111.0 | | Per share | $478.45 | Scenarios | Scenario | Value/share | Price/value | |---|---|---| | Bear (5% yr-1 growth, 3% growth after, 10% margin) | $305.23 | 2.06x | | Margin fades to 10% | $368.46 | 1.71x | | Consensus year-1 growth (7.6%) | $474.79 | 1.33x | | Base | $478.45 | 1.32x | | Margin rises to 13.5% | $522.45 | 1.21x | | Budget boom (9% growth, 13.5% margin) | $588.16 | 1.07x | | 15% return on capital after year 10 | $636.97 | 0.99x | | Bull (9% growth, 13.5% margin, 15% terminal ROIC) | $790.69 | 0.80x | What the price implies With the standard terminal assumption, $629.75 needs about 13.1% annual growth in years 2 to 5, or a long-run margin of about 15.9%. Both are above what Lockheed has done historically. If you assume a 15% return on capital after year 10, the price only needs 5.7% growth, which is below my base case. So the question is whether Lockheed's position on F-35, missile defense and classified programs is a lasting moat. If it is, the stock is fairly priced. If it isn't, it looks expensive. Risks - Program charges: fixed-price and classified program losses hit 2024-25, and one classified program is at about $1.8bn of cumulative losses. - Budget: the FY27 $1.5tn defense request hasn't been appropriated yet, and funding is on a continuing resolution until 11 Dec 2026. - Capital returns: there have been no buybacks this year, and the 10-Q flags executive orders as a risk to capital returns. - Customer concentration: the US government was 72% of 2025 sales, and the F-35 alone was 27%. - Pension: the FAS/CAS pension adjustment adds about $1.7bn a year to operating profit. - Ultra Maritime: the $3.45bn cash acquisition closes in Q4 2026 and isn't in these numbers. My read: Lockheed looks moderately expensive on standard assumptions, and fairly priced if you believe the moat holds.