Should You Buy Lockheed Martin Stock Right Now?

With $75 billion in annual revenue, defense contractor Lockheed Martin (NYSE: LMT) is literally the world's largest pure-play defense stock. And now it's time to watch Lockheed Martin get even bigger.

This week, Reuters reported that the government of Greece is preparing to spend massively to upgrade its military after watching neighboring Cyprus suffer multiple attacks from Iranian drones and ballistic missiles. Total spending on the defense program could exceed 4 billion euros (about $4.6 billion). At least 1 billion of that -- $1.15 billion -- would go directly to Lockheed Martin to pay for upgrading 38 F-16C fighter jets into the modern F-16 Vipers.

The F-16 Viper (aka F-16V) boasts improved bomb load, better radar, better computers, and -- importantly -- the ability to integrate its data feeds with fifth-generation fighters such as Lockheed's own F-35 Lightning II. To date, Greece has ordered 20 F-35s from Lockheed, with options to buy 20 more.

Image source: Getty Images.

You get an F-16! And you get an F-16!

Lockheed Martin's F-16 is hands down the most popular fighter jet in the world. According to aviation news site FlightGlobal, fully 15% of all fighter jets on Earth (2,102 planes in active service) are Lockheed Martin F-16s. Greece alone owns 152 of them, but has upgraded only about 40 to F-16Vs -- meaning this week's $1.15 billion deal could expand to as much as $3.5 billion as Greece continues to upgrade the fleet.

Nor is Greece the only country upgrading its air force with F-16s. Aerospace Global News reports that Greek neighbor Bulgaria and nearby Slovakia are buying F-16Vs. Ukraine, Romania, and Argentina are all buying used F-16s that might be upgraded later (by Lockheed Martin). Turkey is both buying new and upgrading existing F-16s.

Long story short, even if the F-35 -- called Lockheed's "trillion-dollar warplane" for the amount of orders it's expected to collect in total -- is the future for Lockheed Martin, the aerospace giant is also making bank by selling and upgrading the plane that made it famous in the first place.

Is Lockheed Martin stock a buy?

Priced at 30 times earnings and more than twice trailing sales, it's not cheap. Over the past two decades, Lockheed's stock price has averaged closer to 1.3 times sales, suggesting investors may be reading too much into current demand.

That said, Lockheed is generating a lot of cash right now -- $6.9 billion over the past 12 months, according to data from S&P Global Market Intelligence, or nearly 40% more than reported net income. Given the price-to-free-cash-flow ratio of only 21.5, the 2.1% dividend yield, and the analyst forecast of nearly 19% long-term earnings growth, there's an argument to be made that Lockheed stock is cheaper than it looks.

If you ask me, it really all depends on the growth rate. If the analysts are right, though, and Lockheed grows as fast as they're projecting, Lockheed Martin stock could be fairly priced -- and maybe even cheap enough to buy.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.