I can’t resist a Rocky movie — whether our hero is battling Apollo Creed, Clubber Lang, or Victor Drago, there’s nothing like cheering Rocky as he gets off the mat, steps forward, and wins it for Adrian or Mick.

Right now, I feel like Lockheed Martin (LMT 1.05%) is the defense stock equivalent of The Italian Stallion. Lockheed had a rough second quarter, taking $1.6 billion in charges that pushed earnings way down. The stock is essentially flat so far this year and is down 15% from a year ago.

But to put it in Rocky film parlance, this fight’s not over. Lockheed Martin stock has a lot left in the tank and gives me the “Yo, I didn’t hear no bell” swagger.

In short, an investment of $5,000 into LMT stock could provide an excellent return in the next few years.

About Lockheed Martin

Lockheed Martin is the largest defense contractor in the world, operating space, intelligence, defense, and security solutions to the U.S. government. The company is best known for its military aircraft, including the F-35 Lightning fighter, the F-16 Fighting Falcon, F-22 Raptor, and MH-60 helicopters.

The company has four units: Aeronautics for tactical aircraft and related equipment, Missiles and Fire Control for weapon systems, Rotary and Mission Systems for helicopters and maritime systems, and Space for civil, commercial, and weather spacecraft and missile defense systems.

The company reported $18.2 billion in revenue in the second quarter, up from $18.1 billion a year ago. Net earnings were $342 million and $1.46 per share, which was a sharp drop from a year ago when it reported $1.6 billion in net earnings and $6.85 per share.

Management said the difference was on account of $1.6 billion in recorded program losses in the Aeronautics Classified Program and two international programs with the Sikorsky business unit. The Aeronautics program has been plagued with design and test challenges, management said, resulting in changes to the program’s processes and testing approach and a writedown of $950 million. Sikorsky helicopter programs for Canada and Turkey also saw additional losses totaling $665 million as the scopes of those programs changed.

CFO Evan Scott said: 

We have a focused team engaged with these programs on a daily basis. Actively implementing our adjusted approach and working to prevent charges like this going forward. We continue to learn, and the fact is these are important, although challenging programs, and Lockheed Martin has a long legacy of innovation and navigating complex issues. We’re confident over the long term that we’ll be able to manage these issues and continue extending our track record of delivering for the customer, and our shareholders.

It’s time for the training montage

If we’re keeping with the Rocky analogy, this would be the montage part of the movie where our hero starts training and scaling those museum stairs. Because you know Lockheed Martin will come out fighting from this misstep.

First, it’s still stacking up wins. It just got a $10.8 billion contract to build up to 99 helicopters for the Marines, scored a $9.8 billion contract from the Army for nearly 2,000 Patriot defense missiles, and was awarded a prototype agreement to partner with the Army in creating a next-generation command prototype that will help commanders make faster decisions.

The company also ended the second quarter with a backlog of $166.5 billion in projects, having delivered 50 F-35s and 24 government helicopters during the quarter.

Winning the fight

That nasty $1.6 billion write-down makes Lockheed Martin stock look like a risk. But it’s really not. Currently the price-to-earnings ratio is 27.6, which is much higher than the 10-year mean of 20. But the current ratio is higher only because the write-off knocked earnings way down. If you look at the forward P/E ratio of 22.4, that’s much closer to Lockheed’s historical prices.

Then consider Lockheed Martin’s generous dividend. Currently the company’s paying $13.20 in dividends per year, with a yield of 2.7%. And the dividend is growing consistently, having risen 100% in the last 10 years. That’s also very appealing when you consider the stock’s 144% growth over the same decade.

LMT Dividend data by YCharts

Lockheed Martin is expected to see 5% growth this year and 4% growth in 2026. Assuming conservatively that it keeps at 4% growth with a 2.7% dividend yield, then investors would be looking at 6.7% growth each year. And that is achievable, considering that Lockheed Martin increased net income by 70% in the last decade.

Thus, your $5,000 investment in Lockheed Martin would come close to doubling in just a decade.

So in the end, Lockheed Martin’s taking some punches right now. But like Rocky, it’s built to go the distance.