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Lockheed Martin: Module 6

Lockheed Martin: Module 6. Devin Sheehan. Lockheed Martin Background. Aeronautics (31.69% of Sales) F-22 Raptor, C-130 Hercules, U-2 Spy Plane Information Systems and Global Solutions (18.75% of Sales) Cyber Security and Battlefield Intel Missiles and Fire Control (15.80% of Sales)

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Lockheed Martin: Module 6

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  1. Lockheed Martin: Module 6 Devin Sheehan

  2. Lockheed Martin Background • Aeronautics (31.69%of Sales) • F-22 Raptor, C-130 Hercules, U-2 Spy Plane • Information Systems and Global Solutions (18.75%of Sales) • Cyber Security and Battlefield Intel • Missiles and Fire Control (15.80%of Sales) • HellFire Missile and Javelin Missile • Mission Systems and Training (16.06%of Sales) • Integrated Warfare Systems & Sensors (IWSS) • Space (17.69%of Sales) • commercial and military satellites, space probes, missile defense systems

  3. Lockheed Martin Background cont.

  4. Cost of Debt • 2012 10-k, “we issued a total of $2.0 billion of long-term notes with fixed coupon rates ranging from 2.13% to 4.85%” • I went with 3.475%, the average. • So 3.475*(1-.37) = 2.19%

  5. Beta

  6. Statistical Regression

  7. Beta Cont. • My calculated beta was .87 Based on 60 months of data. • Bloomberg: Raw: .87, Adjusted: .913 • Some online estimates • Yahoo: .59 • Google: .87 • Reuters: .73

  8. Cost of Equity • I used 5% for the market risk premium • I’m not as bearish as Goldman • I used 4.5% for the risk free rate, as we have in the slides • This gave me, LMT: 4.5% + .913 x 5% = 9.07%

  9. WACC • 7.44% = (2.19% * $14,705.16) + (9.07%* $47,616.00) $62,321.16$62,321.16

  10. Bloomberg

  11. WACC Adjusted • 4.5% + .913 x 6% = 9.52% • 8.72% = (2.5% * $6,152 ) + (9.52%* $47,616.00) $53,768$53,768

  12. Conclusion • WACC of 7.44 = Enterprise Value (DCF): $45,159B • WACC of 8.72 = Enterprise Value (DCF): $35,644B • Market Cap = 47,616B

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