• If you have ever looked at Lockheed Martin and wondered whether the current share price really matches its underlying value, you are not alone.
• The stock most recently closed at US$667.82, with returns of 0.5% over 7 days, 5.3% over 30 days, 34.4% year to date, 52.9% over 1 year, 51.2% over 3 years and 126.5% over 5 years.
• Recent headlines have continued to focus on Lockheed Martin as a key global defense contractor, with investors paying close attention to contract activity, geopolitical tensions and government spending decisions. These factors often influence how the market thinks about risk, future cash flows and what it is willing to pay for the stock at any given time.
• On our valuation checklist, Lockheed Martin scores 3 out of 6 for being undervalued, giving it a value score of 3. Next, we will walk through what different valuation approaches say about that price tag and finish by looking at a more complete way to think about value beyond any single metric.

Approach 1: Lockheed Martin Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and then discounting those back to today using a required rate of return. In this case, the model used is a 2 Stage Free Cash Flow to Equity approach.

Lockheed Martin’s latest twelve month free cash flow is about $6.79b. Analyst estimates and extrapolations feed into a ten year path of projected free cash flows, with Simply Wall St using direct analyst inputs for the earlier years and then extending that pattern further out. By 2030, projected free cash flow is $7.59b, with later years based on modest extension assumptions rather than new analyst forecasts.

When all those future cash flows are discounted back to today, the DCF model arrives at an estimated intrinsic value of US$644.60 per share. Compared with the recent market price of US$667.82, that implies the stock is about 3.6% overvalued, which is a relatively small gap.

Result: ABOUT RIGHT

Lockheed Martin is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Approach 2: Lockheed Martin Price vs Earnings

For a profitable company like Lockheed Martin, the P/E ratio is a useful cross check because it directly links what you pay per share to the earnings the business is currently generating. The higher the growth that investors expect and the lower the perceived risk, the higher a “normal” or “fair” P/E ratio tends to be.

Lockheed Martin currently trades on a P/E of 30.63x. That sits below the Aerospace & Defense industry average of 44.00x and below the peer group average of 52.81x. Simply Wall St also calculates a proprietary “Fair Ratio” of 43.21x for Lockheed Martin, which is the P/E level suggested by factors such as its earnings profile, industry, profit margins, market cap and risk characteristics.

This Fair Ratio can be more informative than a simple comparison with peers or the industry, because it adjusts for company specific traits rather than assuming all Aerospace & Defense names deserve the same multiple. Comparing the current P/E of 30.63x with the Fair Ratio of 43.21x points to the shares trading below that model implied level.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Lockheed Martin Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St’s Community page you can use Narratives, where you and other investors link a clear story about Lockheed Martin to specific assumptions for future revenue, earnings, margins and a fair value. You can then compare that fair value with the latest share price and see it update automatically as new news or earnings arrive. One Lockheed Martin Narrative on the platform now ties a more cautious fair value of about US$568.61 per share to lower long term growth and a higher discount rate. A more optimistic Narrative uses a higher fair value of about US$652.53 per share with stronger growth and margins. This gives you a simple way to see how different views on the same company translate into different fair values and potential buy or sell decisions.

Do you think there's more to the story for Lockheed Martin? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.