Lockheed Martin (LMT)

Business Overview

Lockheed Martin is a platform prime: a defence contractor whose economics turn on one flagship weapons platform. Here that platform is the F-35. FY2025 revenue was $75,048M, with backlog of $193.6B at 31 December 2025, roughly 2.6 years of forward revenue at the FY2025 run rate. Government revenue was ~99.6% of sales: US government $53,412M plus international government $21,343M against commercial revenue of just $293M. Market capitalisation was roughly $122B as of 10 June 2026 (~230.0M shares × $530.13).

The F-35 programme accounted for 27% of consolidated net sales in FY2025 and 67% of Aeronautics segment sales, above the 25% level this site flags as single-programme concentration. Segment operating margin, each division's operating profit as a share of its revenue, was 9.0% company-wide. Aeronautics was the low point at 6.9%. Missiles & Fire Control ran 13.8%, with Rotary & Mission Systems and Space at 7.6% and 10.3%.

Management cited book-to-bill, new orders divided by revenue recognised in the same period, of ~1.2x on the Q4 2025 earnings call. That figure does not appear in Exhibit 99.1 or the FY2025 10-K, so it is call-cited. Treat it with that caveat when comparing against peer ratios in the backlog guide.

How the Numbers Read

FY2025 free cash flow was $6,908M against net earnings of $5,017M, a 138% FCF conversion ratio, the highest among the six primes except L3Harris (170%). This site's working convention treats FCF conversion above 90% as strong. Cash ran ahead of reported earnings because of pension timing, working-capital swings and percentage-of-completion accounting, which books revenue as long-cycle contract work is done, whenever the cash arrives. Together they routinely pull cash away from earnings at platform primes. The FCF yield guide uses LMT's 138% conversion as the worked example of why a cash screen and an earnings screen can disagree.

With ~99.6% of revenue from government customers, Lockheed's results move almost one-for-one with US defence and allied procurement budgets. The FY2026 US DoD budget request totals $961.6B, up 11.8% on FY2025's enacted $860.1B. NATO members met the 2% of GDP defence-spending target for the first time in 2025, all 32 of them, and the Hague Summit has committed to 5% of GDP by 2035. Lockheed captures that spending growth with almost no commercial revenue to offset a downturn, unlike RTX's 52% defence / 48% commercial split, described in the demand-cycle guide.

Valuation Framework

A platform prime like Lockheed is better read on backlog conversion and cash generation than on a standard industrial discounted cash flow. At 138% conversion, net income understates the cash the business generates, so check an earnings-based screen against a cash-based one.

Segment margin dispersion, Aeronautics at 6.9% against Missiles at 13.8%, reflects contract mix and lifecycle phase on individual programmes. F-35 volume at scale keeps Aeronautics revenue high but margin thin. The open question is whether F-35 lot pricing and international deliveries can lift that segment's margin without a programme disruption.

What to Watch in the Financials

F-35 share of consolidated sales. 27% of sales in FY2025, above the 25% concentration threshold. A production pause, an export restriction or a major cost overrun on F-35 would move a quarter of group revenue.

Backlog and book-to-bill. $193.6B backlog is the forward revenue anchor, and the ~1.2x call-cited book-to-bill points to modest backlog growth. Because that ratio is not filed, watch orders commentary on earnings calls and funded backlog disclosures in the 10-K instead.

FCF conversion versus net income. 138% in FY2025. Sustained conversion above 100% keeps cash running ahead of reported earnings; a drop toward 70-90%, the range this site treats as normal, would warrant a look at working capital and capex timing.

Aeronautics margin trajectory. 6.9% segment operating margin is the floor in the portfolio. Missiles & Fire Control at 13.8% shows where mature, cost-type-heavy programmes can land.

Key Risks

F-35 programme concentration. At 27% of consolidated sales and 67% of Aeronautics, F-35 is the binary risk. Lot award delays, a technical grounding, or a major allied export cancellation would hit consolidated revenue and Aeronautics together.

Single-customer government dependency. ~99.6% government revenue leaves almost no commercial buffer if US appropriations cycles stall or a continuing resolution freezes new awards.

Thin Aeronautics margins at scale. 6.9% segment operating margin on the company's largest revenue pool limits operating leverage even when volumes grow. Fixed-price lot renegotiations or cost growth on legacy blocks compress this further.

Call-only book-to-bill. Without a filed ~1.2x ratio, peer comparisons to RTX (1.56x filed) or GD (1.5x filed) require definitional care. Do not treat management's call figure as equivalent to a 10-K disclosed ratio.