Lockheed Martin: Is the Market Overlooking This Defensive Giant?

Key Points

• Lockheed Martin's portfolio of advanced, mission-critical defense systems provides a nearly impenetrable strategic advantage in the global security market.
• A massive and reliable order backlog provides exceptional revenue visibility, ensuring financial stability and insulating the company from economic volatility.
• The company's long-standing commitment to rewarding investors is demonstrated through decades of consistent dividend growth and significant share repurchase programs.

For investors tracking Lockheed Martin NYSE: LMT, the past year has been a test of patience.

The stock has underperformed the broader market, creating a disconnect between the defense sector giant’s strategic importance and its recent market performance. The most recent catalyst for this downward pressure was the company's second-quarter 2025 earnings report, released in late July, which revealed $1.6 billion in pre-tax losses associated with a handful of complex programs. This led management to cut its full-year earnings-per-share (EPS) forecast, raising questions and doubts among investors.

However, sentiment around the stock is actively shifting. And in the current environment, Lockheed presents a critical question: Does this short-term operational turbulence signal a fundamental flaw, or does it signal a compelling entry point for investors focused on long-term value?

Lockheed’s Twin Engines of Long-Term Value

The long-term bull case for Lockheed Martin is built on two interconnected pillars: a nearly impenetrable strategic moat and the massive financial backlog that results from it. For Lockheed, this advantage comes from a portfolio of high-tech, mission-critical systems that, due to immense research costs and decades-long development cycles, are exceptionally difficult for competitors to replicate.

This moat is evident across its business segments, which translate directly into massive revenue streams. In its aeronautics division, which posted $7.4 billion in sales in the second quarter of 2025, the F-35 Lightning II is the undisputed cornerstone of 5th-generation air power for the United States and more than a dozen of its allies.

Meanwhile, the Missiles and Fire Control segment saw sales grow an impressive 11% year-over-year, driven by high demand for tactical weapons like the Patriot Advanced Capability-3 (PAC-3) and HIMARS rocket systems. These are not discretionary purchases for governments; they are essential tools for national security.

This strategic importance translates directly into financial stability through the company’s immense order backlog. As of the second quarter of 2025, Lockheed Martin reported a total backlog of $166.5 billion. This figure represents the total value of all signed and funded contracts for future work.

For investors, this multi-year order book provides exceptional visibility into future revenue, making financial forecasting more reliable and accurate. This high degree of predictability helps insulate the company from the volatility of short-term economic cycles, a key characteristic of a top-tier defensive stock.

Shareholder Returns and Cash Generation Remain a Focus

No investment is without risk, and investors must consider the significant headwinds that the company has recently faced. The $1.6 billion charge taken in the second quarter is a material event, and the subsequent reduction in the full-year EPS guidance to a range of $21.70 - $22.00 reflects a real impact on profitability. However, the company's underlying financial health appears to be strong, particularly in terms of its ability to generate cash.

In a move that should provide confidence to long-term investors, management reaffirmed its robust 2025 free cash flow guidance of $6.6 billion to $6.8 billion. Free cash flow is a critical metric because it represents the cash a company generates after accounting for the capital expenditures needed to maintain its operations. It is the lifeblood that funds growth and, most importantly for many investors, direct returns to shareholders.

The company has a long and consistent history of rewarding its investors. Lockheed Martin’s dividend profile is a key part of the investment thesis, offering a current yield of approximately 2.94%. Critically, that dividend has been increased for 22 consecutive years. While its dividend represents about 74% of its earnings (a figure that might seem high), it accounts for a more sustainable 38% of its cash flow, indicating a healthy capacity to continue making payments.

This is supplemented by a substantial share repurchase program. In the second quarter alone, the company returned $1.3 billion to shareholders. These buybacks have a tangible effect, reducing the number of weighted average diluted shares outstanding from 239.6 million in Q2 2024 to 234.3 million in Q2 2025. Fewer shares on the market means that future profits are divided among a smaller number of owners, which tends to increase earnings per share over time.

This combination of headwinds and strong cash generation has created what appears to be an attractive valuation. The consensus 12-month price target from Lockheed Martin’s analyst community stands at $494.00, suggesting meaningful 10% upside from its current trading level.

Lockheed Martin’s Position of Enduring Strength

While near-term headlines have created stock price volatility, a deeper look reveals a company with its fundamental strengths firmly intact. The powerful combination of a strategically essential product line, a predictable multi-billion-dollar backlog, and a steadfast commitment to shareholder returns through dividends and buybacks solidifies Lockheed Martin's status as a core holding for any long-term, defense-oriented portfolio.