Is Lockheed Martin Doomed?
New technologies led by drones could spell doom for Lockheed Martin (NYSE: LMT); and its $388.26 a share stock.
Oddly, Yemen’s Houthi rebels potentially destroyed much of the Lockheed Martin Corporation’s business when they blew up two Saudi oil processing facilities on 14 September 2019. To explain, the Houthis disabled half of Saudi Arabia’s oil production and disrupted the world’s oil markets with a drone attack.
Those drones could have cost as little as $15,000 yet they caught Saudi Arabia by surprise, The New York Times claims. In fact, the drones easily evaded Saudi Arabia’s 313 fighter jets and 122 batteries of antiaircraft missiles.
“This happened despite the Saudis spending $67.6 billion (£54 billion) on their defence budget last year, much of it on vastly expensive aircraft and air defence systems, which notably failed to stop the attack,” Patrick Cockburn writes at The Independent. Cockburn claims that a single F-35 Lighting II fighter plane built by Lockheed Martin costs $122 million.
The Military Industrial Complex Failed Completely
Essentially, the modern military industrial complex failed on 14 September 2019. Indeed, 14 September 2019, could mark the greatest failure of America’s military industrial complex since the Pearl Harbor attack in 1941.
That threatens Lockheed Martin because the Lockheed Martin Corporation is the military industrial complex. For instance, Lockheed Martin builds missile defense systems. However, the Houthis and their Iranian friends just showed missile defense systems are useless in today’s warfare.
In addition, Lockheed Martin builds such fighter aircraft as the F-16 Fighting Falcon, the F-2 Support Fighter, the F-21, the F-22 Raptor, the armed Blackhawk helicopter, and the controversial F-35 Lightning II. The Houthis just demonstrated you no longer need expensive fighter aircraft, top-gun pilots, and all the support systems that come with them to do billions of dollars in damage.
Hence, there could no longer be a market for much of Lockheed Martin’s product line. Indeed, I imagine many foreign leaders will cancel their weapons orders in the months ahead. Lockheed Martin could soon shut down many of its factories and send planes straight from the assembly line to the boneyard.
Progress threatens Lockheed’s business because governments could get far more “bang for their buck” with drones. For instance, you could theoretically buy thousands, or tens of thousands of drones, for the cost of one F-35.
Can Lockheed Martin Survive?
On the positive side, Lockheed Martin manufactures several drones including the Desert Hawk III, the Indago, the Hybrid Airship, the X56A, the 74K Aerostat, and the X59 QuessT.
In addition, Lockheed Martin plans some next generation drones including the Ares. In detail, they design the Ares as a pilot-less vertical takeoff and landing (VTOL) transport aircraft. Thus, Ares could deliver troops, supplies, robot tanks, or robot soldiers to future battlefields.
Furthermore, air forces could easily adapt many of Lockheed Martin’s aircraft as drone delivery platforms. The CJ130J Super Hercules, the 74K Aerostat, and C-5 Galaxy transport planes could deliver huge swarms of drones to a battlefield for instance. In addition, Lockheed Martin could turn its proposed Hybrid Airship into a flying aircraft carrier for drones.
Finally, drones could fire many of Lockheed Martin’s weapons. A drone could easily fire the Javelin missile or the long-range anti-ship missile for instance. Ultimately, Lockheed Martin could build one of its multiple launch rocket systems (MLRS) into the Ares. The Ares could land and pulverize any target with the MLRS with no human help.
Thus, Lockheed Martin could have a lot of value in the age of drone warfare. Lockheed Martin could quickly adapt much of its arsenal to drone warfare. In addition, Lockheed is researching new drones at Procerus Technologies, the Skunk Works, and is investing the use of artificial intelligence (AI) on the battlefield.
I think Lockheed Martin’s management knows of the drone threat and is preparing for it. Thus, this defense contractor can survive the obsolesce of some of its signature products.
Is Lockheed Martin a Value Investment?
Interestingly, Lockheed Martin is growing and making money. For example, Lockheed Martin (NYSE: LMT) reported revenues of $14.427 billion on 30 June 2019.
Lockheed’s revenues grew at a rate of 7.68% during the quarter that ended on 30 June 2019. Moreover, Lockheed reported a quarterly gross profit of $1.993 billion at the end of June 2019. Plus Lockheed reports a net income of $1.42 billion and $1.683 billion in earnings before taxes for that quarter.
Those numbers led to a quarterly free cash flow of $1.668 billion and a free cash flow of $1.419 billion. However, Lockheed Martin recorded a negative investing cash flow of -$251 million and a negative financing cash flow -$1.241 billion on 30 June 2019.
Ultimately, Lockheed Martin has little cash left after building all those weapons and vehicles. The company had $1.167 billion in cash and equivalents on 30 June 2019.
Given these numbers I do not consider LMT a valuable investment because it has little cash. Instead, I think Lockheed Martin could be a few big defense cuts away from serious trouble.
How Safe is the Lockheed Martin Dividend?
Therefore, the great dividends Lockheed Martin (NYSE: LMT) investors enjoy could be under threat.
Impressively, Lockheed Martin paid a $2.20 quarterly dividend on 30 August 2019. In addition, that dividend grew by 10% or 20₵ in 2018. To clarify, LMT paid a $2 dividend on 31 August 2019 and a $2.20 dividend on 30 November 2019.
In total, Lockheed Martin offers investors a dividend yield of 2.27%, an annualized payout of $8.80 and a payout ratio of 51.1%. Plus, Dividend.com reports Lockheed Martin delivered 16 years of dividend growth.
I think these numbers explain the persistence and power of America’s military industrial complex. In the final analysis the military industrial complex pays very well.
The Moral Dilemma at America’s Military Industrial Complex
However, the military industrial complex and Lockheed Martin present a serious moral dilemma for investors. First, this company manufactures products that kill. Hence LMT violates basic tenets of Christian, Jewish, Buddhist, and Islamic theology. I.e. Thou shall kill.
Second, the events of 14 September 2019 demonstrate Lockheed Martin; and the entire military industrial complex, could fail in their primary mission. That mission is to protect America and other countries from attack by providing innovative military technologies.
The military industrial complex failed spectacularly in Saudi Arabia on 14 September 2019. In fact, I think the drone inferno could be a bigger debacle for the US military and its suppliers than the September 11 attacks in 2001.
To clarify, September 11 was a one-time event, a suicide attack carried out by fanatics who could die once. The 14 September drone attackers are still out there and they can easily strike again. Hence, the Drone Wars have begun and America is unprepared.
The Drone Wars Have Begun
The Drone Wars have been waging for some time and nobody in Washington noticed. In reality, the Saudi oil facilities, were only the latest in an increasingly destructive series of drone attacks.
For example, a drone started a fire that reportedly destroyed $1 billion worth ammunition at Balakliya, Ukraine, on 23 March 2017, Market Mad House notes. In detail, the drone probably set a huge government ammo dump on fire by dropping a thermite grenade.
A thermite grenade is a simple incendiary device that generates temperatures of up to 4,000 degrees Fahrenheit (2,204 degrees centigrade). In 2017, I estimated the cost of a thermite grenade the ZMG-1 at $12.50 to $110. Hence, Urkanian rebels could have destroyed $1 billion worth of munitions for as little as $12.50 plus the cost of the drone.
Consequently, drones could destroy expensive pieces of US military equipment; like the $122 billion F-35 Lightning II. for under $100. To explain, a drone can destroy a fighter plane by dropping one thermite grenade on it.
The Drone Wars Heat Up
Nor is it just land based targets drone could take out. On 14 August 2017, a drone easily penetrated the security of the Royal Navy’s brand new $5.09 billion (£3.9 billion) aircraft carrier the HMS Queen Elizabeth.
The drone landed on the carrier’s deck, took pictures and flew away. If a drone can land on the carrier’s deck, it could easily deposit a thermite grenade or a large bomb. If a drone drops a thermite grenade on the carrier deck while aircraft are refueling it could turn the HMS Queen Elizabeth into a floating inferno.
In the process, the drone could destroy 10 helicopters and 40 F-35B fighter planes and cripple the United Kingdom’s defenses. Plus, a drone attack on the Queen Elizabeth could kill or injure 1,600 sailors in the vessel’s crew.
Nor is it just the military that’s at threat. In August 2018, a drone nearly killed Venezuelan President Nicolás Maduro during a speech. The drone almost threw that country into chaos because Maduro was speaking on nationwide television during the attack.
Disturbingly, Maduro was at a military event and surrounded by soldiers during the attack. Marduro survived but other drone victims have not been so lucky. On 19 September 2019, a U.S. drone attack in Nangarhar province Afghanistan killed 30 pine nut farmers and injured 40 people, Al Jazeera claims. Drones were trying to kill ISIS terrorists when they hit the farmers.
Thus drones are a threat to both civilians and the military. Yet the military industrial complex is unprepared for them.
Is Lockheed Martin Ready for the Drone Wars?
Lockheed Martin has the resources to cash in on the Drone Wars. The company’s legendary Skunk Works is one of the world’s most successful aircraft research and development facilities.
The Skunk Works is developing next-generation drones that could strike targets anywhere on Earth from bases in the United States, for instance. In addition, Lockheed Martin can repurpose many of its aircraft as drones.
However, Lockheed Martin could take a big hit if the Drone War prompts Congress to kill the F-35 and other expensive fighter programs. Thus, I think Lockheed Martin is a risky and overpriced stock investors need to avoid.
The future of warfare is in flux because of drones. That could threaten Martin Lockheed’s profitability and dividend.
