comparing the valuation of General Dynamics Corporation and Lockheed-Martin.

 comparing the valuation of General Dynamics Corporation and Lockheed-Martin.

This report compares the valuation of General Dynamics Corporation and Lockheed-Martin. Lockheed-Martin corporation is an aerospace and security company that has four operating segments, that is, aeronautics, control segments, mission system and rotary segment and space system segment. The company offers different products and services such as air and missiles defense systems, civil and military helicopters .research, design and development of satellites, unmanned air vehicles and related technologies. On the other hand, GENERAL DYNAMICS provides defense and aerospace products and services globally. Like Lockheed-Martin corporation, it has four operating segments. These are marine systems, technology and information system, aerospace and combat systems. These segments offer products and services similar to Lockheed-Martin’s corporation. Conclusively, the two companies are competitors as they offer similar products and services to the same market. It is, therefore, worthwhile to examine their variation based on related parameters as they operate in the same industry and sector.

 

The price-earnings ratio is an often-used metric by investors to determine the value of a stock. Investors can determine if a particular stock is undervalued or overvalued and, also, compares it with the sector, Industry, or benchmarks such as indexes. The price earnings ratio also enables investors to compare the stock value and the company’s earnings.

A higher price-earnings ratio means the stock price is relatively higher against the company’s earnings and overvalued. Conversely, low price earnings ratio indicates undervaluation of stock and the its price lower to its earning. The trailing twelve months price earning g ratios of general dynamics and Lockheed Martin are 14.3 times and 17.34 times respectively. Since General dynamics has lower price earnings ratio that its major competitor Lockheed-Martin, its is undervalued and its growth rate is also lower. However, when compared with the industry ratio of 19.5 times, both companies appear undervalued. The main reason why General dynamics has a lower ratio might be because of lower revenue compared to Lockheed-Martin. Higher revenue will result to a higher Earnings per share eventually increasing P/E ratio.

 

General Dynamics Corporation current share price is 165.03 dolars which is lower compared to Estimated share price based on Industry’s TTM P/E and Firm’s earnings TTM and Estimated share price based on Sector’s TTM P/E and Firm’s earnings TTM which are 225.03 and 268.42 dolars respectively. The reason why its lower is because the latter two prices computation are based on the industry and sector price earning ratio which are higher. That is the Industry and sector trailing twelve moth price earnings ratio are 19.5 and 23.26 respectively which are higher compared to general dynamics corporation which is 14.3. Additionally, Estimated share price based on Industry’s TTM P/E and Mean Year End Earnings Estimates and Estimated share price based on

Sector’s TTM P/E and Mean Year End Earnings Estimates are 248.43 and 296.33 respectively and are higher than the current market price of 165.03 dollars.

The reason why estimated prices is higher than the current can be attributed to the fact that then company is currently not performing better like other firms in the Industry and the sector as indicated by current price earnings ratio. Additionally, expected prices are based on market industries and sectors price earnings ratio and expected earning per share which are higher than the firms current ratios and earnings.

 

P/E ratio indicates whether a company stock is undervalued or overvalued compared with other in he same industry. A higher P/E may indicate the stocks are overvalued and vise vasa. This is based on the notion that investors are willing to pay highly today because of future growth expectation. As such, General dynamics appears to undervalued more undervalued that Lockheed-Martin. However, when compared to the Industry and the sector, the two firms are undervalued. The reason could be both companies have lower growth than the Industry. However, its is recommended that P/E ratio should not be the only parameters to be used for valuation of a company stock but should be coupled up by other criteria o cement the conclusion.