Lockheed Martin Corporation (LMT) and The Boeing Company (BA) are two of the world’s largest aerospace, defense, and security technology companies. Founded in 1912, LMT operates through the following segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space. BA operates through four segments: Commercial Airplanes; Defense, Space & Security; Global Services; and Boeing Capital.

According to Deloitte’s 2021 aerospace and defense industry outlook, global defense spending is expected to grow by approximately  2.8% in 2021, crossing the $2 trillion mark. Heavy investments in research and development, as well as planned procurements of advanced military equipment to replace  aging equipment have been accelerating the defense industry’s growth. Intensifying  geopolitical tensions have motivated countries to strengthen their military capabilities significantly. Because  defense spending is expected to remain stable, prominent players in the defense market—LMT and BA—are well positioned to benefit. While LMT has gained 3.8% over the past year, BA has returned 72.1% over the same period. In terms of their performance over the past three months, LMT is the clear winner with 14.9% gains versus BA’s 3.2%. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

This month, LMT’s SBIRS GEO-5,  the latest satellite to join  Space Force’s orbiting Overhead Persistent Infrared (OPIR) missile warning constellation. The launch marks the company’s first military space satellite to be built on an LM 2100 Combat Bus. Amid rising geopolitical tensions, LMT’s modernized, and more resilient missile warning launch is an important step toward strengthening the U.S.’ defense.

On April 30, LMT, along with the U.S. government, submitted an F-35 best and final offer (BAFO) to the Finnish government to help meet its security of supply requirements. The company will also collaborate with Finnish companies and academic institutions that are expected to provide further opportunities focused on developing security collaborations.

And in  April, Silk Way West Airlines signed a deal with BA to purchase five Boeing 777 freighters to increase its capacity to meet growing cargo and e-commerce demand. BA’s 777 freighter is the company’s top-selling freighter of all time. It  is designed to integrate smoothly with existing cargo operations.

In March, Pomerantz LLP began investigating claims on behalf of BA’s shareholders for potential securities fraud or other unlawful business practices.

Recent Financial Results

In the first quarter, ended March 31, LMT’s net sales increased 3.9% year-over-year to $16.26 billion. Its net earnings rose 7% from its  year-ago value to $1.84 billion, while its EPS grew 7.9% year-over-year to $6.56. Its Rotary and Mission Systems segment’s net sales increased 9.6% from the prior-year quarter to $4.11 billion. The company’s operating profit under the same segment rose 15% year-over-year to $433 million during this period.

BA’s total revenue declined 10% year-over-year to $15.22 billion in the first quarter, ended March 31. Furthermore, the company’s non-GAAP core operating loss came in at $353 million, while its non-GAAP core loss per share was  $1.53. Its non-GAAP core operating margin was negative 2.3%. Also, BA’s Commercial Airplanes revenue decreased 31% year-over-year to $4.27 billion.

Past and Expected Financial Performance

LMT’s revenue and total assets increased at CAGRs of 9.4% and 3.3%, respectively, over the past three years. In comparison, BA’s revenues declined at a 16.1% CAGR over the past three years, while its total assets increased at a 9.7% CAGR over this period.

The Street expects LMT’s revenue to rise 4.5% in the current year, and 3.7% next year. The consensus EPS estimates indicate a 12.8% increase in the current quarter, ending June 2021. In comparison, analysts expect BA’s revenue to increase 36.4% in its fiscal year 2021 and 11.8% in 2022. The company’s EPS is estimated to increase 87.5% in the current quarter.

Profitability      

LMT’s trailing-12-month revenue is 1.17 times BA’s. Also, LMT is more profitable with a 13.4%  gross profit margin, compared to BA’s negative 1.4%.

 LMTS’s ROE and ROA of 142.7% and 11.2%, respectively, compare favorably with BA’s 87.2% and negative 3.3%.

Therefore, LMT is more profitable.

Valuation

In terms of trailing-12-month Price/Sales, BA is currently trading at 2.28x, 39.9% higher than LMT, which is currently trading at 1.63x. Also, its forward EV/Sales of 2.18x is 28.2% higher than LMT’s 1.70x.

BA is also more expensive in terms of forward EV/EBITDA (32.93x versus 11.04x).

POWR Ratings

LMT has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system, while BA has an overall D rating, which represents a Sell. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

In terms of Stability Grade, LMT has a B, indicating that it is more stable than its peers. In comparison, BA has a D grade for Stability.

Also, LMT has a B grade for Quality and Value. This is justified given its higher profitability and relatively lower valuation multiples. However, BA has a D grade for both Quality and Value, in sync with its weak profitability and higher-than-industry valuation multiples.

Of the 66 stocks in the D-rated Air/Defense Services industry, LMT is ranked #10 while BA is ranked #63.

In addition to what we’ve highlighted, our POWR Ratings system has also rated both LMT and BA for Sentiment, Growth and Momentum. Get all LMT ratings here. Also, click here to see the additional POWR Ratings for BA.

The Winner

Because the need to deter military threats of the future could lead to a hike in defense spending globally, both LMT and BA can be considered good long-term investments. However, LMT appears to be a better buy based on the factors discussed here. We think its  investment in next generation technologies and higher profitability should help the stock perform better than BA.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the top-rated stocks in the Air/Defense Services industry.  

LMT shares were trading at $388.14 per share on Friday morning, down $0.18 (-0.05%). Year-to-date, LMT has gained 10.18%, versus a 11.82% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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