A defense industry juggernaut, Lockheed Martin Corporation (NYSE: LMT) has made plenty of defense industry investors wealthy over the past few decades, making its bones in the global security, defense and aerospace markets.
The company is coming off multiple contracts with the Pentagon worth billions, including a $503 million modification deal involving F-35 Lightning II deployment spares packages, and a $3.5 billion U.S. Army simulation contract for LMT’s rotary and mission systems unit.
Recent history has been kind to LMT investors, as the company has consistently provided good share price growth during the last several years, thanks to robust global demand for its products, solid strategic initiatives and strong company growth.
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What does the future hold for the Bethesda, Maryland-based defense sector giant?
LMT stock at a glance. Market watchers deem LMT stock as a general favorite, but with areas of specific concern as analysts say Lockheed remains too dependent on U.S. government military spending and heightened industry competition could cast a shadow over the company’s balance sheets.
Lockheed’s stock price in 2017 continued a strong run of year-to-year performance in previous years, as LMT’s stock price rose by 24 percent in 2017, 18 percent in 2016 and 12.3 percent in 2015.
On the downside, LMT stock has been held back somewhat by a Pentagon cost-cutting initiative (the Pentagon is reportedly balking at the estimated $1.1 billion price to own and operate a single F-35) and by easing of fears of a North Korea-South Korea military conflict.
In late April, Lockheed hiked its estimated outlook for 2018, boosting its fiscal year 2018 earnings per share outlook to a range of $15.80 to $16.10 from the prior outlook of $15.20 to $15.50.
Analysts polled by Thomson Reuters note that Lockheed will report earnings of $15.56 per share for fiscal year. Additionally, Lockheed raised its annual net sales guidance to a range of $50.35 billion to $51.85 billion from the prior estimation of $50 billion to $51.50 billion. Meanwhile, analysts peg revenues at $51.1 billion for fiscal year 2018.
Lockheed stock is currently trading just above $310 a share and analysts call for LMT’s share price to grow to $371 in the next year. The company also offers investors an annualized dividend of $8 per share, with a dividend yield average of 2.6 percent.
Pros of buying LMT stock. Analysts are generally bullish on LMT stock, with eight analysts calling Lockheed Martin either a “strong buy” and one calling it a “buy”. Five others give LMT a “hold” rating.
Analysts cite several reasons for backing Lockheed stock, although the profit-heavy F-35 program is at the top of the list. Revenues from Lockheed’s aeronautics division, which produces the F-35 jet, increased 6.7 percent to $4.4 billion in the last quarter, comprising 38 percent of total revenue in the quarter.
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Recent volatility in LMT stock could also spell opportunity for investors, market watchers note. “The company’s shares saw significant share price volatility over the past couple of months on the NYSE, rising to the highs of $358.60 and falling to the lows of $305.70,” says Ricardo Crouch, a stock market expert at Simply Wall Street. “This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price.”
Cons of buying LMT stock. Geopolitical considerations may be a headwind for Lockheed Martin going forward, and that could crimp share price growth, experts say.
“The biggest potential roadblock for Lockheed Martin stock is political risk,” says Robert Johnson, principal at the Fed Policy Investment Research Group. “If the Republicans were to lose control of the House in the midterm election, that likely would be negative for defense spending, as the House would likely be more dovish than the current Republican-controlled House, Senate and executive branches.”
Longer term, the elections in 2020 could result in a much more dovish political landscape. “The prospect of a Democratic president with a Democratically-controlled House would not be welcomed by investors in defense stocks,” Johnson says.
Language used by President Donald Trump after meeting with North Korean leader Kim Jong Un may also give some unease on LMT stock.
“It isn’t simply a change in the composition of the U.S. government that should concern investors in Lockheed Martin,” Johnson says. “If the talks with Kim Jong Un truly do signal a de-escalation of hostilities between the U.S. and North Korea, defense stocks may not be as attractive,” Johnson says.
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The bottom line on LMT stock. With the F-35 program continuing to rake in cash, strong momentum already occurring in 2018 and the fact that Lockheed Martin is the Pentagon’s leading weapons supplier, LMT stock appears to be a solid pick for defense industry-minded investors.
As LMT is trading near year-to-year lows, the time to strike on LMT looks to be sooner rather than later.
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Pros and Cons of Buying Lockheed Martin Corporation (LMT) Stock originally appeared on usnews.com
