In addition to the time span of contracts, the lengthy time frames associated with the development of technologically advanced weapons systems as wide-ranging as the F-35 fighter (nearly two decades from conception to when the contract was awarded), satellite systems and hypersonic missile systems result in a wide barrier to entry for prospective competitors. The current remaining orders for F-35s by the US are expected to continue for the next 12 years. In fact, the F-35 is the largest weapon program in history and should generate stable revenue for decades through procurement and sustainment programs. Furthermore, most defense contracts last for decades providing a steady stream of guaranteed and predictable revenue.įor example, contracts associated with LMT’s F-35, which accounts for roughly 30% of the company’s revenue, are expected to continue through 2070. When viewed in this context, LMT is in a sense quite diversified. The Space segment (18% of 2020 revenues) manufactures satellites, space transportation systems, and strategic, advanced strike, and defensive systems, and the Missiles and Fire Control segment (17% of 2020 revenues) provides missile and targeting systems. The Rotary and Mission segment (25% of 2020 revenue) sells helicopters, near-shore combat ships, and mission systems for rotary fixed-wing aircraft, subs, and ships.

The Aeronautics segment (40% of 2020 revenues) develops and manufactures fighter jets and transport aircraft. However, there are a number of factors that mitigate the risk associated with having the US Department of Defense as a primary customer. After all, 70% of the company’s sales in 2020 came from the US military. It is not too far-fetched to claim LMT operates in a monopsony. Management is pouring billions into its stock buyback program, the company’s backlog is robust and growing, and the F-35 program is guaranteed to provide a strong revenue source for years to come. Meanwhile, LMT just came off of a record-breaking year.

However, despite these woes, or perhaps because of the company’s misfortune, one can reason that iconic companies in the midst of a turnaround often provide market-beating returns. This resulted in Boeing’s revenues plummeting from an all-time high of over $101 billion in 2018 to just over $58 billion in 2020.Īs if that were not enough bad news, the firm took on a heavy debt load, and has also lost market share to its main rival, Airbus ( OTCPK:EADSY). The grounding of Boeing’s 737 MAX, combined with the devastation wrought on the airline industry by the pandemic provided a one-two punch that sent the company reeling. Of course, Boeing is also one of only two major manufacturers of commercial airlines. Lockheed Martin Corporation ( NYSE: LMT) and The Boeing Company ( NYSE: BA) are rated as the number one and number five US defense companies respectively.

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