For Lockheed, We Still Pay Heed
We maintain a Buy recommendation for Lockheed Martin Corp. (LMT) as the company appears well-positioned to continue to benefit from strong defense outlays through 2008-09. Solid operating results, via existing and new contracts, coupled with the success of its C-130J and F-35 aircraft collectively continue to deliver strong earnings and cash flow growth. The management increased its 2008 per share guidance by $0.10, which supports the bullish outlook. Additionally, the company's dividend was recently increased by 20%.
Price appreciation to our near-term valuation target, coupled with the increased $0.42 per share quarterly dividend, which we consider sustainable and secure based on low projected earnings payouts, represents annualized total return potential of 20.2%. The decision by The Boeing Company (BA) and Lockheed to undertake a joint venture appears to be the right move at the right time.
Going forward, we believe LMT has significant upside potential based on strong defense outlays throughout 2008-09, additional earnings accretive acquisitions such as Eagle Group International, LLC, above-industry average return-on-invested-capital, expanding product lines, rapid progress with the C-130J, F-22 and F-35 aircraft programs, and continued strong earnings and cash flow growth.
On the basis of relative multiples of sales and cash flow, LMT trades at the median multiple of its industry peers. Given solid long-term earning growth expectations and favorable projected EPS comparisons through 2008-09, we consider a premium valuation to be justified. Accordingly, we set a six-month target price of $113.25, or 15.2x our 2008 EPS estimate and 13.8x our 2009 EPS estimate.
Little Pop from FIZZ Shares
National Beverage Corp. (FIZZ) is implementing a 'fantasy of flavors' strategy that makes it less dependent on the negative carbonated soft drink (CSD) trend in the U.S. However, in the near-term, input costs are expected to continue rising due to double-digit increases in the prices of aluminum cans and high fructose corn syrup. The stock is rated a Hold.
As consumers increasingly focus on health and wellness, the consumption of caloric carbonated soft drinks has declined in the U.S. In reaction, management is concentrating on exploiting the rising consumption of products perceived to deliver health, wellness and/or functionality. With the company geared towards addressing changing consumer trends, any sudden shift in consumer preferences could severely affect sales.
The stock of National Beverage has traded in a P/E multiple range of 12.6 to 34.3 over the last five years. At the current P/E of 14.5, we find the stock to be attractive but not compelling, since CSD volumes continue to decline at almost a double-digit pace and no earnings progress is expected over the next 12 months. The stock's target price is $8.00, based on a 16 P/E on trailing 12-month earnings.
Short-Term Concerns for STMicro
STMicroelectronics N.V. (STM) continues to upgrade products and forge strategic alliances in order to fuel long-term growth. The company reported an in-line 2008 first quarter in terms of revenues, driven by strong performances from its ASP (Application Specific Product Group) and IMS (Industrial and Multi-Segment Group) groups.
