High tech smiles

Donald Saltz

December 06, 1991|By Donald Saltz

The Martin Marietta Corp. is a major defense contractor, but its approach to that business is conservative. The firm does not build what a spokesman calls "big-ticket" items such as tanks, planes or submarines; rather, it concentrates on high technology such as the Lantrin night vision system which was so successful in the Persian Gulf War; targeting for the Apache helicopter, or improved reconnaissance systems.

The result for the huge Bethesda-based company -- it has 60,000 employees, about 5,000 of them in Maryland -- has been an ability to avoid cost overruns and a consistent rise in profits even as the defense business grows much more competitive as budget cuts take hold.

Last year, Marietta earned $435 million on sales of more than $6.1 billion, amounting to a robust $6.52 a share. So far, earnings are up slightly this year to a new peak. The shares are selling for less than 8 times earnings with the share price, currently near 51, midway between its high and low for this year. Additionally, this has been a less volatile stock than many others in the technology field. Marietta's high and low for the past year has been about 6 and 42, respectively

Marietta is a very diversified company. Despite its various businesses, however, about three-quarters of total sales and earnings are derived from defense, the risk minimized by the nature of the work. As the federal government cuts back on new programs, companies such as Marietta are able to put new technology to work in existing programs and hardware "updating." Other major areas of activity include an aggregates (crushed rock and stone) business, and work on an automation system for the Postal Service.

Predicting that earnings should at least remain steady, even with reduced defense spending, a company official noted the large amount of spending the company continues to pour into research and technology, at more than $2 billion a year the largest of any Defense Department contractor.

It is the importance of R&D and its unfolding into actual commercial results that is expected to maintain a steady flow of earnings. Some of the technology which the public witnessed for the first time during the Persian Gulf War was developed 20 years ago, the company official said.

Martin Marietta is aware of cycles in defense spending and company officials anticipate a revival in outlays during the second half of the 1990s. Until then, technology coming through the pipeline should keep the firm's bottom line healthy.

THE BOND ALTERNATIVE

The securities markets have been gaining business from tens of thousands of individuals who normally keep their dollars elsewhere, primarily in banks and savings and loans, as the declining interest rates have led them to shop around frantically. Typically, these are the folks who hold certificates of deposit.

With savings rates going now to under 5 percent and with stock yields in many cases even less competitive, quality bonds are an alternative. As important as the yield, or even more so, is the price stability that has prevailed at many quality bond funds.

A T. Rowe Price short-term bond fund -- maturity average is a little under three years -- yields 7.2 percent and has had a price swing only from $4.90 to $5.06 for all of this year.

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