Based on the solid sales growth expectations for

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Based on the solid sales growth, expectations for higher margins, and a lower tax rate, we are raising our 2018 EPS forecast to $16.10 from $15.50. Our estimate is at the high end of management’s guidance range. We look for further growth in 2019 and are raising our EPS forecast to $18.15 from $18.00. Our long-term EPS growth rate forecast remains 9%.
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M ARKET D IGEST - 9 - FINANCIAL STRENGTH & DIVIDEND Our financial strength rating for Lockheed Martin is Medium. The company scores about average on our main components of financial strength: debt levels (including the impact of unfunded pension assets), fixed-cost coverage, cash flow generation and profitability. The company has a stock buyback plan. At the end of the most recent quarter, shares outstanding were down 1.5% year- over-year. Lockheed pays a dividend. In September 2017, it raised its quarterly payout by 10% to $2.00 per share, or $8.00 annually, for an above-industry-average yield of 2.3%. We think the payout is secure and expect it to grow. Our dividend forecasts are $8.40 for 2018 and $8.84 for 2019. Lockheed has increased its dividend at a double-digit pace for 15 consecutive years. MANAGEMENT & RISKS Marillyn Hewson is the chairman and CEO of Lockheed. Bruce Tanner has served as CFO since 2007. Investors in LMT shares face risks. Lockheed is a key supplier to the U.S. military and thus vulnerable to cuts in defense spending. Approximately three-quarters of the company’s current revenue comes from U.S. government contracts. However, LMT and other defense contractors have been expanding internationally to offset volatile Defense spending trends, particularly on short-cycle programs. And in any event, with a Republican in the White House and the House and Senate both controlled by the GOP, the outlook for defense spending has brightened. Congress recently enacted the Consolidated Appropriation Act of 2018, which raised Department of Defense-based budget funding to $600 billion — up 14% from 2017 and the largest year-over-year increase in base budget funding in 15 years. Coupled with funding for overseas contingency operations, the total DoD appropriation rose to $665 billion. Lockheed Martin programs representing all four of business areas received more than $7 billion of appropriations above the fiscal 2018 budget request, a sign of strong support the company’s product portfolio. On a more micro basis, President Trump has focused his attention (and tweets) on Lockheed Martin’s important F-35 program. LMT management has gone to great lengths to demonstrate that F-35 costs are falling and remain below government forecasts. COMPANY DESCRIPTION Lockheed Martin provides advanced technology systems, products and services to the U.S. government and international defense customers. The company is organized into four businesses: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems, and Space Systems. The shares are a component of the S&P 500.
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