Defense Giant Lockheed Martin Just Got a Little Bigger

Valued at nearly $147 billion, with more than $79 billion in annual revenue and $6.5 billion in annual profit, Lockheed Martin (LMT -1.03%) is widely recognized as the world’s largest pure-play defense company.

This week, it got a little bigger.

Image source: Lockheed Martin.

Lockheed Martin’s little-big buy

Lockheed Martin is, of course, best known for its aerospace products — fourth-generation F-16 fighter jets and fifth-generation F-35 stealth fighters in particular, as well as missile systems such as ATACMS, JASSM, LRASM, and Patriot air defense missiles. The company does venture into other product lines. In the air, for example, Lockheed Martin made an aggressive foray into helicopters a few years ago, snapping up Sikorsky and bringing it in-house. Lockheed was even involved, for a time, in building Littoral Combat Ships for the U.S. Navy.

And now it’s diving into the deep end of the ocean.

On July 6, Lockheed announced its intention to acquire undersea and antisubmarine warfare specialist Ultra Maritime, a manufacturer of sonobuoys, towed sonar arrays, and hull-mounted sonar systems, for $3.45 billion. On Monday, Oct. 26, Lockheed finally closed this acquisition, bringing Ultra Maritime in-house and promising “to unite the best of our technology, capability and people to meet our partners’ urgent and growing demand for undersea warfare capability worldwide.”

Each of Lockheed’s three primary spheres of business — airplanes, space satellites and rockets, and missiles — has its own independent business division within the company’s corporate structure. In contrast, the company tosses its helicopters, warships, and other ventures into a catch-all division known as “rotary and mission systems.”

This is where Ultra Maritime will fit in.

What you need to know about Lockheed Martin’s rotary and mission systems division

With so many businesses tossed into the catch-all, Lockheed Martin’s RMS is actually the company’s second-biggest division by sales, boasting $19.7 billion in revenue last year (about 26% of total revenue) and $1.3 billion in operating profit (resulting in an operating profit margin of just 6.6%, far below Lockheed’s overall average operating margin of 10.7%).

Because neither Lockheed nor Advent (the private equity firm that owns Ultra Maritime) has disclosed the precise details of Ultra’s financials, it’s not 100% clear what effect absorbing Ultra will have on Lockheed RMS. What we do know is this:

Up until the company was taken private in 2022, Ultra Maritime (at the time a division of Ultra Electronics) was doing roughly $535 million in revenue and earning nearly 15% margins on its sales, according to data from S&P Global Market Intelligence. We also know from Ultra’s own press release on the sale to Lockheed that it has grown its revenue at a brisk 17% annual rate under Advent’s ownership.

Which implies that Ultra Maritime may be doing as much as $1 billion in annual revenue today.

Assuming this number is correct — and that Ultra has maintained its profit margins under Advent’s ownership — it’s logical to presume that buying Ultra won’t just give Lockheed RMS a revenue boost. It’ll significantly improve both the division’s profit margin and its growth rate as well.

LMT – Lockheed Martin

$636.95-$6.64 (-1.03%)

NYSE · As of 4:00 PM ET 10/30/26

The upshot for investors

At least, Lockheed Martin investors had better hope this is the case.

Working off the assumption that Lockheed is paying $3.45 billion to add $1 billion in annual revenue to RMS implies Lockheed is paying a price-to-sales ratio of about 3.5 for Ultra. That’s nearly twice what Lockheed’s own shares fetch on the open market. What’s more, Lockheed itself is already growing even faster than Ultra, with S&P forecasting nearly an 18% earnings growth rate over the next five years.

So will Lockheed’s bet on Ultra pay off? Only time will tell for sure, but with Lockheed stock trading at only 22 times earnings, paying a respectable 2.3% dividend yield, and growing at 18% (even before the acquisition), I think it’s probably worth the risk.

Source: www.fool.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.