Virgin Galactic vs. Lockheed Martin: Which Space Stock is a Better Buy?

NYSE: LMT | Lockheed Martin Corporation  News, Ratings, and Charts

LMT – The space-flight industry is expected to grow steadily this year. In fact, the potential creation of a space-exploration ETF, if completed, could help leading space stocks such as Virgin Galactic Holdings (SPCE) and Lockheed Martin (LMT) continue their ascent (please forgive the pun) in the coming months. But let’s find out which of these stocks is a better buy now.

Virgin Galactic Holdings, Inc. (SPCE) and Lockheed Martin Corporation (LMT) are two of the largest aerospace companies, both of which are engaged in the development of space travel.

Headquartered in New Mexico, SPCE’s spaceship operations include commercial human spaceflight, and shuttling commercial research and development payloads into space. LMT, which is based in Maryland, operates through four segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space.

The space industry appears to have significant growth potential in the coming years. Although an investment freeze amid the COVID-19 pandemic was a setback, private investments in the sector have bounced back with the beginnings of the global economy’s slow return from recession to health. .

Also, ARK Innovations’ plans to launch a space-focused ETF, under the ticker ARKX, has steered investor attention toward prominent players like SPCE and LMT.

While SPCE returned 138.4% over the past month, LMT gained only marginally. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

On February 9, SPCE announced the establishment  of its Space Advisory Board, which  will provide advice to senior management as the company begins  commercial spaceflight service and develops next generation vehicles. The Board will  also assist the company in its exploration and pursuit  of  opportunities in the commercial, civil, and government-related markets.

Levi & Korsinsky, LLP, a national securities law firm, last month announced a class action investigation into  Robinhood, Interactive Brokers, and other popular retail trading platforms on behalf of investors of SPCE, who suffered because of trading bans or forced liquidations involving SPCE shares.

LMT has appointed President and CEO James D. Taiclet as chairman of its board, effective March 1. The board also elected Gregory M. Ulmer, as executive vice president of Aeronautics. Their wide-ranging experience and impressive records in leadership should  help LMT to grow and thrive.

LMT recently completed the assembly and testing of its  Orion Artemis I spacecraft and has transferred possession to NASA’s Exploration Ground Systems (EGS) team to prepare for its Moon mission later this year. This advancement should open the door to a new era of deep space exploration for the company.

Recent Financial Results

In the third quarter ended September 30, 2020, SPCE reported an operating loss of $77.18 million and a net loss of $76.95 million. Its interest income declined 36.4% year-over-year to $322,000. The company reported cash and cash equivalents of $742 million as of September 30, 2020.

LMT’s net sales increased 7.3% year-over-year to $17.03 billion in the fourth quarter ended December 31, 2020. Its net earnings rose 19.6% from the year-ago value to $1.79 billion, while its EPS grew 20.6% year-over-year to $6.38. Its Space segment’s net sales increased 14% from the prior-year quarter to $3.24 billion.

Here LMT is in an advantageous position.

Expected Financial Performance

Analysts expect SPCE’s revenue to increase 710.9% in the current quarter, and 4398.1% in the current year, while Its EPS is expected to grow 26.7% in the current quarter, and 46.4% in the current year.

In comparison, analysts expect LMT’s revenue to increase 4.9% in the current quarter, and 4.2% in the current year. The company’s EPS is expected to increase 3.8% in the current quarter, and 7.1% in the current year.

Profitability      

LMT’s trailing-12-month revenue is much higher than SPCE’s. But SPCE is more profitable, with a gross profit margin of 36.5% versus LMT’s 13.3%.

However, LMT’s ROE and ROA of 149.6% and 11.3%, respectively,  compare favorably with SPCE’s negative returns.

Valuation

In terms of trailing-12-month price/sales, SPCE is currently trading at 16.19Kx, which is significantly higher than LMT’s 1.45x. Also, SPCE is more expensive in terms of trailing-12-month ev/sales (17.22Kx versus 1.61x) and trailing-12-month price-to-book (19.14x versus 15.73x).

So, LMT is the more affordable stock.

POWR Ratings

While LMT has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system, SPCE has an overall rating of F, which translates to Strong Sell. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Both SPCE and LMT have a C grade for Growth , which is consistent with their expected growth in earnings and revenues.

In terms of Value Grade, LMT has a B, which tracks  with its lower-than-industry p/e ratio. SPCE’s Value Grade of F is reflective of its higher-than-industry price-to-book ratio.

LMT has a B grade for Quality, which indicates  that it is more profitable than SPCE, which has a grade of F.

While SPCE is ranked #27 of 27 stocks in the Airlines industry, LMT is ranked #3 in the 69-stock Air/Defense Services industry.

Our POWR Ratings system has also rated  SPCE and LMT for Momentum, Stability, and Sentiment. Get all SPCE’s ratings hereClick here to see the additional POWR Ratings for LMT.

POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

The Winner

SPCE and LMT can be considered good long-term investments based on their market dominance and major contributions in the aerospace industry. LMT appears to be a better buy based on the factors discussed here. We think LMT’s much lower relative valuation and stronger financials should help the stock perform better in the long run.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. If one is looking for better stocks in the Airlines industry, click here. Also, click here if you want to know about other top-rated stocks in the Air/Defense Services industry.

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LMT shares were trading at $337.33 per share on Friday afternoon, down $1.81 (-0.53%). Year-to-date, LMT has declined -4.97%, versus a 4.69% 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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