Alternative Valuation Methods

The residual operating income value is derived by first calculating the ROPI figure using Net operating assets, weighted average cost of capital, and net operating profit after tax. The ROPI is derived from Actual NOPAT - Breakeven NOPAT. Breakeven NOPAT is the required amount given the cost of capital multiplied by NOA. 

The dividend discount model estimates the value of the share price, based on the present value of future dividends, using the CAPM rate from the cost of capital section. The assumptions used in the model include: 

• Growth rate from free cash flow

• Current Dividend from Value Line

• Cost of equity using CAPM in the cost of capital section

The dividend discount model gives a value per share of $304.69 for Lockheed Martin, a figure that is far too low to be included in the final stock price valuation

To conduct the market multiples approach, the metrics listed below the stock prices were derived from Value Line research. Additionally, each per share metric is divided by the respective stock price to get the multiple of each metric. The metrics gauge the  multiple at which the respective shares are trading relative to the per share metrics. Here, there are no outliers for the comparative companies, as the multiples are all within a small range. 

The final share price chosen is the average price for the 3rd quartile, excluding the price to book ratio. The assumption behind the third quartile is that Lockheed is a dominant player in the defense industry. Relative to it's competitors Lockheed earns more contracts, has higher quality earnings, and will continue to grow their operations domestically. Lockheed is the go to defense contractor and can be counted on to produce next gen defense products, and continuously maintain their status as a pioneer in the defense industry. 

Additionally the decision to exclude price to book, is based on the fact that Lockheed was trading at $430.86 as of April 4th 2025, and it would take events such as bankruptcy, massive fraud, or a total loss of defense spending to reach the $92.45 price level.