1/ Revisiting my Lockheed Martin, $LMT, long thesis after they reported 2020 Q2 earnings this morning. I was introduced to the U.S. defense industry and LMT through Ben Rich's memoir, Skunkworks, one of my favorites 'business biographies'
amazon.com/Skunk-Works-Pe…
amazon.com/Skunk-Works-Pe…
2/ Beyond the ingenious feats of engineering, the book clarifies the almost captive relationship U.S. defense contractors have with their largest customer, the Department of Defense (DoD) in the name of national security and more broadly encompassing the safety of allied nations
3/ 'The DoD Put' combined with positive correlation to geopolitical tensions are both unique characteristics only found within the largest U.S. defense contractors; LMT, GD LHX, NOC and RTX. LMT is my favorite of the group for a variety of reasons; 
4/ I am skeptical of significant M&A, which favors LMT over LHX, RTX, NOC. In fact, LMT demonstrated Diller or Malone like savvy in their IS&GS disposition, affected through a Reverse Morris Trust in early 2016
5/ LMT's capabilities cover a wide swath of defense and military spending. RMS = helicoptors and drones, MFC = missiles and fire control. Importantly, international sales are ~30%, an almost 3x increase from 10 years ago
6/ The Company consistently returns ~50% of FCF to shareholders, favoring dividends to buybacks ~1.5x in the past few years. Share outstanding have shrank by 27.0% in over the last 10 years!
7/ A sharp reduction in the U.S. defense budget is the largest risk to LMT and its defense contractor peers. The 2021 budget projects to increase spending by 2.6% but the gravy train since 2001 is widely perceived to be over
nytimes.com/reuters/2020/0…
nytimes.com/reuters/2020/0…
8/ LMT's former CEO and Chairwoman, Marillyn Hewson, resigned both roles this year as she reached deemed retirement age following 37 years of service. She was replaced by James Taiclet, most recently CEO and Chairman of American Tower since 2003 and an LMT director since 2018
9/ While LMT has hedge characteristics; the 'DoD Put' and correlation to global unrest, results over the last five years have been fantastic; FCF/Shr. CAGR of 16.8%, average FCF ROA of 9.2% and total returns >100%, nearly double the S&P 500 and XAR, a defense industry ETF
