Lockheed Martin (NYSE:LMT) is one of the world's largest defense contractor by revenue. As a manufacturer of primarily electronic, information, aeronautic, and space systems, LMT has benefited from the increased defense spending that has accompanied the Afghan and Iraq War.
United States government spending typically represents about 85% of Lockheed Martin's revenue. As a result, the company is sensitive to political changes that impact federal government spending priorities. Historically, Republican political victories have benefited Lockheed Martin through increases in defense spending.
The Lockheed Martin Corporation is involved in the research, development, and manufacturing of technological systems, products, and services. It makes money by producing, operating, and maintaining these products for its customers, which are almost always for the governments (mainly the US government).
Lockheed Martin's growth continues to be fueled by global political instability, such as the conflicts in the Middle East particularly because Israel is Lockheed Martin's primary export partner. While civilian contracts do not play a very significant role, Lockheed Martin's diversification program (even within government contracts themselves) helps it sustain its net income and revenue levels even during times of global peace. Lockheed's diversification program focuses mainly on the acquisition of companies that can help them expand into civil endeavors.
Lockheed Martin is susceptible to fluctuations in the Department of Defense's budget since contracts with the United States government account for approximately 85% of its income. Therefore, the distribution of government spending also affects Lockheed Martin.
President Obama has mentioned on several occasions his desire to reduce the defense budget. Often, while such a goal might reduce LMT's revenues in the long-run, defense allocations are planned several years in advance, so there will be a lag before any reductions by the Obama administration take effect. But when these decisions occur abruptly, LMT suffers tremendously.
Lockheed Martin has been negatively affected by the Obama presidency, as military/defense spending have been cut under his administration. Further, depending on political preferences, LMT's operations can be curtailed if it does business with a country that no longer is in favorable terms with the United States. This is because arms sales to foreign governments are tightly regulated by the Arms Export Control Act. Foreign investments by Lockheed Martin, such as a joint venture with the Russian government on space systems, carry the risk of total loss if U.S. regulators deem instability in Russia or the hostility of that government to require the project's termination.
LMT projects strong international growth for the next several years in the global security solutions sphere as governments around the world face increasingly complex threats, specifically from terrorist fears. In particular, international demand for security systems and solutions is expected to grow from 15% currently to around 20% in coming years. According to Homeland Security Research, this global demand for homeland security worldwide is expected to grow by roughly 124% to $518 billion USD by 2015. By increasing exposure to these lines, LMT can diversify its revenues as well as take part in the growing demand for security systems.
For comparison purposes, Lockheed Martin had $45.8 billion in FY2010 revenues.
|Company||FY2010 Net Profit Margin||FY2010 Operating Margin||FY2010 EBITD Margin||Return on Average Equity||Biggest Division|
|Lockheed Martin||5.77%||8.94%||11.11%||67.50%||Electronic Systems|
|Northrop Grumman (NOC)||5.86%||8.83%||10.85%||15.5%||Electronic Systems|
|Raytheon Company (RTN)||7.32%||10.35%||11.56%||18.43%||Space and Airborne Systems|
|General Dynamics (GD)||8.09%||12.15%||13.90%||20.42%||Information Systems and Technology|