Lockheed Missing the Mark; Coors Has Ingredients for Success
Stock Exchange lets readers listen in as Times staff writers James Peltz and Michael Hiltzik debate the merits of individual stocks.
Lockheed Martin (LMT)
(Jim: Don’t buy)
(Mike: Don’t buy)
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Mike: Here we have the nation’s biggest aerospace and defense company, Jim, and yet I can’t help but think that the main reason Lockheed Martin still gets a good view of the heavens these days is because it’s flat on its back.
Jim: It’s ironic, isn’t it? I mean, here’s this huge maker of precision weapons and fighter planes and satellites, yet judging by its stock price you’d think Lockheed Martin couldn’t hit water if it fell out of a boat.
Mike: This company’s in trouble all right, and maybe it has something to do with being on the government dole for so long. You know, you lose your edge.
Jim: You might be on to something. Many of the other big defense contractors, such as Boeing and Raytheon, are also struggling, which makes you wonder about the management skills at these companies. Especially when you recall that their executives created these companies by engineering huge mergers in the 1990s.
Mike: They were encouraged by the Pentagon.
Jim: Right. As defense spending was slashed, Lockheed Martin and the others had far more plants and people than they needed. So they consolidated big time.
Mike: But that lets Lockheed Martin off the hook only so much.
Jim: Yeah, this company has a lot to answer for. It’s had cost overruns on its big C-130 transport plane, problems with rockets going awry, futuristic missiles that can’t hit their targets and management defections, to just to name a few snags.
Mike: Not to mention a couple of Mars landers that, well, had trouble landing.
Jim: And speaking of missing targets, all of this has meant Lockheed Martin’s earnings haven’t been hitting Wall Street’s targets either, and the big casualty is its stock, which has dropped like the Mars landers. Which is why the future of Chief Executive Vance Coffman is very much in doubt.
Mike: There’s even been talk that Lockheed Martin might try to bring back its previous CEO, Norman Augustine, to run it again. Though from what I’ve seen, Augustine has said, “Thanks, but no thanks.”
Jim: This stock has lost more than half its value over the last year, Mike, and now trades in the high teens, or about 18 times its 2000 earnings per share. But this isn’t a diamond in the rough. Lockheed Martin has big, deep-seated problems, and I wouldn’t buy the stock.
Mike: I agree, though it can’t get much worse.
Jim: Well, it’s true that Lockheed Martin has some things going for it. I mean, its sheer size places it in almost every pocket of the Pentagon’s procurement budget. For instance, it’s competing to build the F-22 next-generation fighter, a program that could mean tens of billions of dollars over the next decade or two.
Mike: True, you can look at the stock’s chart and say it’s bumping along on the bottom and has nowhere to go but up. But don’t forget: Even if it gets more contracts, who’s going to manage them? Lockheed Martin is still looking for a president and a chief operating officer. Those are jobs that CEO Coffman is also handling for the moment, but judging by the record, he’s taxed by just one job, much less three.
Jim: Especially when you have nearly $26 billion in annual sales.
Mike: Every so often, Lockheed Martin says it’s embarking on yet another restructuring to fix all this. But ultimately it looks like the company just threw domino squares around the board and ended up changing nothing.
Jim: And now we’re hearing that Lockheed Martin might spin off this asset or shut down that plant or sell this division. Such a move might give the stock a momentary bump, but not enough for me to buy it today.
Mike: Me neither. And let’s be clear: It’s not a matter of ideas, but that Lockheed Martin just isn’t executing.
Adolph Coors (RKY)
(Jim: Buy)
(Mike: Don’t buy)
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Jim: Now we turn to Coors, Mike, and I won’t even try to make a clever segue, you know, like how I have a problem with guns and butter--but not with guns and a brewski.
Mike: Sounds like you’re telegraphing your pick, and badly, I might add. Now, this is a company whose ticker symbol is RKY, for the Rocky Mountains in which it makes its home.
Jim: Right, Coors is headquartered in Golden, Colo.
Mike: More telling, though, if you look at its stock chart going back to, say, mid-1995, it looks like you’re climbing the eastern slope of the Rockies, almost straight up.
Jim: The stock’s been a great performer. In the latter half of the ‘90s, it far outperformed the Standard & Poor’s 500.
Mike: But then you get to January 1999, when it looks like you’ve hit the Continental Divide. The stock has been staggering downhill ever since, which is really kind of stunning.
Jim: How so?
Mike: Because this is a company whose record of growth in sales and profit is pretty good and quite consistent.
Jim: It’s more than pretty good; it’s outstanding. Coors is the third-largest brewer in the country behind industry leader Anheuser-Busch and the Miller unit of Philip Morris. Coors has around 10% of the market, and Coors Light is its big gun, even more than the conventional Coors brand beer. And this is a company that has executed well.
Mike: Coors is so good at marketing that it’s even made a contender out of some beverage called Zima, and I still don’t know what the hell it is despite millions of bucks in advertising.
Jim: Well, we do know it’s clear.
Mike: I guess we do. I can’t even imagine what it tastes like. And believe it or not, it is Coors’ third- or fourth-best-selling product. But nobody cares on Wall Street, and Coors’ stock has lost a third of its value over the last year.
Jim: These must be frustrating times in Golden. I mean, Coors just posted its fourth-quarter results and, once again, handily beat all the estimates for growth. In fact, Coors has topped Wall Street’s quarterly earnings forecasts for seven consecutive quarters. If any tech company had done that, the stock would have tripled in price by now.
Mike: At least. Not only that, but the smart money says that the key beer-drinking demographic is growing, that being males 20 to 24 years old. Talk about a narrow sector; that’s the same group watching the Howard Stern TV show. Anyway, beer sales for the first time in a decade are up and look to increase for the next year or two as well.
Jim: A little history is important here because, until recently, this industry was, excuse the phrase, as flat as day-old beer. The number of beer drinkers was not growing, and the only way these guys could improve matters was to steal market share from one another.
Mike: Mainly through price wars.
Jim: Right. Then about a year or two ago, Anheuser-Busch took the lead and started raising prices a tad, and, lo and behold, those price hikes stuck. The others followed suit. Now, not only demand but pricing is also getting better for beer.
Mike: Everything seems to be looking up--except Coors’ stock. What’s your theory?
Jim: That Coors, like a lot of beverage shares, is known as a defensive stock. These are stocks you buy when the economy is heading south or when technology stocks lose their luster. The idea is, when everybody is paring their spending, they still keep drinking beer. And who can blame them if the economy is going bust?
Mike: So we have to wait until the next recession to buy Coors?
Jim: No. Coors, as we said, already has shown itself to be a strong stock even when the economy is growing. I just think it’s being ignored because of all the excitement in the technology and other red-hot sectors of the market. But I believe Wall Street will soon give Coors another long look, and I would buy this stock.
Mike: I’m going to part company with you here. The problem with this stock is quite simply Anheuser-Busch, which brews Budweiser and so many other brands. At some point this year or next, it looks like Anheuser-Busch will hold more than 50% of the beer market, and so the company is sucking up all of the investor interest in the brewing business. Look, if it ain’t happened for Coors already, I’m not sure it’s going to happen.
Jim: Yes, it is. Remember, in the late 1990s, when Anheuser-Busch was flat on its back and the beer industry was having all the problems that we discussed, Coors’ stock was performing very nicely. Now it’s just out of fashion, as are many defensive stocks. That will soon pass. Besides, with it trading in the low $40s, the stock costs just 15 times Coors’ expected per-share earnings for this year. That’s as cheap as a Coors Light during happy hour.
Mike: I agree, this is a great company, and it’s well-run. I just don’t see the stock roaring out of its slump any time soon, and I’m going to pass.
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Write or e-mail with a stock you would like to see discussed in this column. Peltz (james.peltz@latimes.com) covers the markets and corporate financial trends. Hiltzik (michael
.hiltzik@latimes.com) covers technology and entertainment and is the author of the book “Dealers of Lightning: Xerox PARC and the Dawn of the Computer Age” (HarperBusiness). Either can also be reached at Business Section, Times Mirror Square, Los Angeles, CA 90053.
