Lockheed Martin CorporationLMTNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $882.03 per share(market-calibrated)

+32.1%

Upside to Fair Value

Current

$667.82

Pure Model

$931.61

Fair Value

$882.03

Bull Case

$1,064.13

Bear Case

$844.79

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

0.50%

Calibrated Growth

1.81%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $931.61.

What's Driving This Ratingfor LMT

✓

CapEx already efficient

CapEx at 2.19% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 11.22% — below the sector mature average of 13.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $12.3B (12.42% margin).

→

Moderate revenue growth

Analyst consensus projects 5.41% revenue growth, fading to 2.25% by Year 10. Revenue reaches $99.2B (vs $75.1B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 175bps below the model's 2.25%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 71.10% indicates efficient cash generation. FCF reaches $10.2B by Year 10 (10.24% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.23

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)5.53%

Cost of Debt

Pre-tax Cost of Debt3.93%

Tax Rate15.28%

After-tax Cost of Debt3.33%

Equity Weight (E/V)87.66%

Debt Weight (D/V)12.34%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (87.66% × 5.53%) + (12.34% × 3.33%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$79.1B	$86.9B	$88.9B	$92.8B	$99.2B
EBIT	$8.9B	$9.8B	$10.0B	$11.0B	$12.3B
Tax	$1.4B	$1.5B	$1.5B	$1.7B	$1.9B
NOPAT	$7.5B	$8.3B	$8.4B	$9.3B	$10.4B
+ Depreciation	$1.6B	$1.7B	$1.8B	$1.8B	$2.0B
- Capex	$1.7B	$1.9B	$1.9B	$2.0B	$2.2B
- Δ NWC	$137M	$126M	$63M	$67M	$73M
Free Cash Flow	$7.2B	$8.0B	$8.2B	$9.1B	$10.2B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$6.8B	$6.8B	$6.3B	$6.2B	$5.9B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$10.2B

Terminal Growth Rate2.25%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$319.5B

PV of Terminal Value$187.0B

Exit Multiple Method

Year 10 EBITDA$14.3B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$257.1B

PV of Terminal Value$150.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$63.9B

PV of Terminal Value$187.0B

Enterprise Value$251.0B

(-) Net Debt$17.6B

Equity Value$233.4B

Shares Outstanding231M

Price per Share$1,010.73

Exit Multiple Method

PV of Projected FCFs$63.9B

PV of Terminal Value$150.5B

Enterprise Value$214.4B

(-) Net Debt$17.6B

Equity Value$196.8B

Shares Outstanding231M

Price per Share$852.48

Pure Model Fair Value

$931.61

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
3.50%	$1,327.21	$1,386.42	$1,327.74	$1,271.81	$1,218.50
4.50%	$1,014.90	$1,097.68	$1,217.24	$1,271.81	$1,218.50
5.50%	$833.29	$875.89	$931.61	$1,007.58	$1,117.33
6.50%	$709.62	$734.63	$765.53	$804.67	$855.85
7.50%	$617.48	$633.44	$652.44	$675.43	$703.84

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$844.79

26.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.29

Base Case

$931.61

39.5% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.23

Bull Case

$1,064.13

59.3% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.30

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth5.41%

Year 3 Revenue Growth4.50%

Year 5 Revenue Growth2.16%

Year 7 Revenue Growth2.20%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin11.22%

Terminal EBIT Margin13.00%

Tax Rate15.28%

Historical Capex / Rev2.19%

NWC / Revenue3.36%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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