Space stocks are taking off this year, with a boost from the White House. Trump signed an Executive Order in December focused on pushing the U.S. government from being a primary operator to becoming a primary customer in the space trade. The order includes ambitious timelines, including accelerating the Artemis program to return to the Moon by 2028 and establishing a permanent lunar presence with nuclear power capabilities by 2030.
The most significant benefit for private industry lies in the mandate for "commercial-first" procurement. By moving toward "as-a-service" models -- where the government pays for data, transport, or energy rather than owning the satellites or reactors -- the order provides companies with predictable revenue streams necessary to attract venture capital and scale operations.
Two companies that should see liftoff from this push are Lockheed Martin (LMT +0.56%) and Leidos Holdings (LDOS +0.19%), both of which are already doing significant space business.
Lockheed Martin's stock is already in orbit
Lockheed Martin is a global defense technology company based in Bethesda, Md., with a space division that designs, builds, and tests lunar and deep space exploration vehicles.
NYSE: LMT
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The company also builds commercial and military satellites, space probes, missile defense systems, the Orion spacecraft used by NASA, and the external tank used on the Space Shuttle. Besides its Space division, Lockheed has three other divisions: Aeronautics, Missiles and Fire Control, and Rotary and Mission Systems.
The stock is up more than 18% in the past year. Third-quarter revenue was reported as $18.6 billion, a 9% year-over-year increase. Earnings per share (EPS) rose 2% to $6.95.
Its space business has been at the forefront of delivering revenue and profit growth for the company. Space revenue increased to $3.36 billion from $3.08 billion in the year-earlier quarter, the company said, driven by $160 million in higher sales for strategic and missile defense programs, as well as an additional $70 million from national security space programs. Operating profit in the space division jumped 22% to $331 million. Lockheed Martin also said it had $179.1 billion in backlogged orders, including $38.4 billion in its space segment.
The defense firm company's huge backlog, more than 8% over what it was just a year ago, shows the increasing demand for its services. The defense industry and its space sector have a high moat, as larger, more-established companies such as Lockheed Martin have a significant edge in expertise and the personnel needed to secure government contracts.
Lockheed Martin raised its share repurchase limit by $2 billion to $9.1 billion. It further helped shareholders by boosting its quarterly dividend by 5% to $3.45 per share, yielding around 2.25%. It has raised its dividend for 23 consecutive years.
Leidos' mission includes key U.S. space contracts
Leidos, based in Reston, Va., is a one-stop shop U.S. government contractor, providing everything from engineering to biomedical research. That includes performing mission-critical work for NASA for more than 20 years.
NYSE: LDOS
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In the third quarter, it announced that it had landed a $760 million subcontract with NASA regarding space exploration for low-Earth-orbit and its Artemis missions. Much of Leidos' work on Artemis involves the spacecraft's laser air-monitoring systems, which ensure astronauts can breathe safely while in orbit by measuring oxygen, water vapor and carbon dioxide levels.
The stock is up more than 29% in the past year. Third-quarter revenue totaled a record $4.5 billion, a 7% increase year-over-year, along with earnings per share (EPS) of $2.82, a 5% rise over the same period last year.
The defense contractor also pays a quarterly dividend that yields approximately 0.87% and it increased its dividend by 7.5% over the prior quarter to $0.43 per share.
The company is also making inroads in another high-growth area, as it is in the process of purchasing ENTRUST Solutions Group from private equity firm Kohlberg for $2.4 billion, giving Leidos greater reach as an engineering provider for U.S. utilities. The move creates some diversification for Leidos beyond defense contracts.
Of the two stocks, both seem to be good long-term choices. Leidos is doing a better job of branching out beyond government contracts and is trading at a lower valuation, making it a better short-term bargain than Lockheed Martin. However, for income-oriented investors, Lockheed's higher dividend and greater dividend history may make it a better choice.
