Lockheed Martin (LMT) 19% Gain $3,196 Profit

Business Description

Lockheed Martin is a global security and aerospace company. They split their business into 4 major categories as shown below. In 2020, the US government made up 74% of their revenue, International customers contracted through the US government (foreign military) made up 25%, and US Commercial and other customers made up the remaining 1%.

Why I purchased

Lockheed Martin has a stable and growing business. Their Gross Profit, Net Earnings, and EPS has grown every year. In 2017, Net Earnings and EPS decreased because of tax law changes. I was very comfortable in using their 2020 EPS of $24.30 as my 2021 EPS projection. I arrived at a valuation of $440 for LMT.

In February 2021, LMT's stock price dropped from a high of $415 to a low of $315. My average purchase price of $323.85 represented over 35% upside.

Why I sold

In 3Q21, LMT took a $1.3 billion noncash loss on their income statement. This was due to transferring pension obligations to an insurance company. This required no additional cash from LMT, however, the transfer "accelerated recognition of actuarial losses". Essentially, this is an expense the company has always been paying. LMT also states that this loss contributes to about $4.72 per share which forced me to change my projected EPS of LMT from $24.30 to about $20. Given their new projected EPS, my valuation changed from $440 to $390.

By January 2021, LMT had risen to my expected valuation of $390. In 1 year, my holdings in LMT had increased by 19%. I was happy with my gains, so I sold my position and moved on to the next stock.

Results

I ended up with $3,196 in profits or 19% gain on my investment.