Previewing Lockheed Martin's (NYSE: LMT) Q1 earnings release on Monday, I expressed a certain lack of enthusiasm about the company's predictions of 0% to 2% growth in the year ahead. But I also admitted: "I'm willing to re-evaluate if the company can become just a bit more optimistic. So come on, Lockheed. Surprise me."

Mission accomplished
In one sense, Lockheed did surprise me, when it reported yet another quarter of outperforming expectations. Lockheed booked a cool $10 billion in sales in Q1, up 8% year over year. Operating profit margins grew 120 basis points, with the space systems segment blazing the trail. This kept Lockheed's margins ahead of those being posted by Boeing (NYSE: BA) and Northrop (NYSE: NOC), but still behind Textron (NYSE: TXT) and Raytheon (NYSE: RTN). For the quarter, it also helped boost Lockheed's net profits by 6%.

And yet, through the picture window, the view remains close to the same as last quarter. Lockheed bumped up its profits prediction to about $7.25 per share for the year, yet kept its sales forecast steady at roughly $42.3 billion. Cash flow from operations took a hit during the quarter, dropping $600 million to $882 million, yet Lockheed's still saying it will generate at least $4.2 billion through the end of this year.

Valuation
Note that I said "cash flow," not "free cash flow." Lockheed did not apprise investors of its anticipated capital spending in its earnings release, so predicting the year's free cash flow requires a bit of guesswork. Lockheed appears to be tracking toward about $1 billion in capex this year, so I'm estimating that by Dec. 31, the company will have generated something on the order of $3.2 billion in free cash flow.

Sad to say, this suggests that Lockheed is not yet cheap enough for Foolish investors. We know the stock trades for 15 times trailing earnings, and as I mentioned earlier this week, that's a bit too expensive for a stock that analysts expect to eventually resume growing at about an 11.5% clip. Based on free cash flow, Lockheed looks a little cheaper, but not sufficiently so. The price-to-free cash flow ratio based on this year's earnings appears to be approximately 14 -- still short of making it a "dirt cheap dream stock."

To earn that title, Lockheed will either need to drop in price, or as I predicted on Monday, continue to tread water until profits catch up with its rich valuation.

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Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.