Lockheed Martin Scores A $15.5 Billion Bonanza For New F-35s. Is The Stock A Buy For 2025?

Lockheed Martin‘s (NYSE: LMT) F-35 Lightning II stealth fighter jet is the gift that keeps on giving. Estimated to be worth $1 trillion in total lifetime value, the F-35 warplane remains easily Lockheed’s most important product. And this was demonstrated once again just late last year, when the week before Christmas saw the Pentagon deliver three gifts to Lockheed Martin worth $15.5 billion in total.

The first and by far biggest gift arrived Dec. 20, when the Pentagon’s daily digest of contract awards showed Lockheed winning orders for 145 F-35 fighter jets worth $11.8 billion. Reported as a contract from the U.S. Navy, this order actually involves deliveries of F-35s for the U.S. Navy, Marine Corps, and Air Force, as well as for U.S. allies Italy and Japan, like so:

For the Air Force: 48 conventional take-off and landing F-35As
For the Marine Corps: 16 short take-off and vertical landing (STOVL) F-35Bs, and five carrier-landing F-35Cs
For the Navy: 14 F-35C aircraft
For “non-U.S. Department of Defense program partners” that helped Lockheed develop the F-35 (in this case, Italy): 15 F-35As and one F-35B
For “Foreign Military Sales” customers who are not program partners on the F-35 (namely, Japan): 39 F-35As and seven F-35Bs

The Department of Defense noted that all planes ordered under this contract are due for delivery by June 2027, so the $11.8 billion covered by this contract will be paid out over the next two and a half years. That’s about $4.7 billion per year in additional revenue for Lockheed. But that’s not all Lockheed is getting.

On Dec. 23, the Pentagon awarded Lockheed two more contracts, also routed through Navy funding, for $3.4 billion and $335.7 million, respectively. These additional contracts cover logistics support, including ground maintenance, supply chain management, and training services, as well as various engineering services and specialized testing and tooling equipment for the F-35. Both run through the end of 2025, adding $3.7 billion in total spending.

In total, that’s $15.5 billion worth of new F-35 revenue for Lockheed, front-loaded so that about $8.4 billion of it shows up in 2025.

F-35 close-up photo. — Image source: Getty Images.

So we’re talking some objectively big numbers here. But let’s put them in the context of the company we’re talking about: Lockheed Martin, the world’s largest pure-play defense contractor. How big of a deal are these contracts for a company of Lockheed’s size?

Referring to data provided by S&P Global Market Intelligence, the additional $8.4 billion Lockheed will receive from these contracts in 2025 amounts to 30% of the $27.8 billion that Lockheed’s Aeronautics division collected in 2023, the last full year for which we have data. It amounts to only 12.4% of the $67.6 billion in revenue that all of Lockheed Martin collected that year, granted. But even that seems like a big bump in revenue for a company that, according to most stock market analysts, is only growing earnings at about 3% annually over the next five years.

Granted, too, most of this additional revenue is front-loaded into 2025, and the increases in F-35 revenue in 2026 and 2027 will be smaller. But they still amount to nearly 7% growth over 2023 revenue — twice analyst forecasts. This suggests that Wall Street forecasts for Lockheed’s future growth may be conservative.

How fast Lockheed Martin stock ends up growing is a key fact investors need to consider when deciding whether to invest in the stock, which is not objectively cheap.

Priced at 17 times trailing earnings, and slightly more expensive when valued on free cash flow, Lockheed Martin really needs to be growing earnings somewhere in the mid-double-digits before I’d consider buying it. At 3% long-term growth, the stock isn’t anywhere near a bargain price. Even at 7% growth, it’s still probably overpriced.

If Lockheed can grow earnings in the 12% range, however, or ideally even a bit better than that, and paying a 2.7% dividend yield to boot, that is when things start to get a bit more interesting, and Lockheed stock starts looking more attractive as an investment.

And the more big-money F-35 contracts Lockheed Martin wins, the more likely that is to happen.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.

Lockheed Martin Scores a $15.5 Billion Bonanza for New F-35s. Is the Stock a Buy for 2025? was originally published by The Motley Fool

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