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On Tuesday, Vertical Research Partners adjusted their outlook on Lockheed Martin (NYSE:LMT) stock, reducing the price target from $563.00 to $519.00. Despite this change, the firm maintained a Hold rating on the defense contractor’s shares. Currently trading at $460.72, with a market capitalization of $109.23 billion, InvestingPro analysis suggests the stock is slightly undervalued. The adjustment comes amid concerns about the long-term impact of fixed price development contracts on the company’s financial performance.
The analyst from Vertical Research Partners, Robert Stallard, expressed concerns about the legacy issues defense companies face due to decisions made in the past. Specifically, Stallard pointed out that Lockheed Martin is experiencing challenges from fixed price development contracts that the company would likely avoid under current conditions. These contracts, once seen as lucrative, are now posing risks to the company’s earnings and cash flow. Despite these concerns, InvestingPro data shows the company maintains a GOOD financial health score, with strong revenue of $71.3 billion and a moderate P/E ratio of 16.61.
Stallard’s commentary highlighted the difficulty in resolving issues stemming from these problem programs. The implication is that such contracts could continue to negatively influence Lockheed Martin’s financial results well into the medium term. However, InvestingPro reveals several positive indicators, including 22 consecutive years of dividend increases and generally low price volatility. For deeper insights into Lockheed Martin’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
Lockheed Martin, as one of the major US defense primes, is not alone in facing the repercussions of historical fixed price development contracts. These contracts often come with high stakes, as they lock in prices for complex projects that can span many years, leaving little room for adjustments in response to unforeseen challenges or increased costs.
The revised price target of $519.00 reflects the firm’s updated assessment of Lockheed Martin’s stock value in light of the challenges posed by these contracts. Investors and stakeholders in the defense sector will be monitoring the company’s performance closely, as it navigates the ongoing risks associated with its contract portfolio.
In other recent news, Lockheed Martin has been the subject of several significant developments. The aerospace and defense company’s stock target was cut to $570 by RBC Capital due to minor changes in estimates ahead of the fourth-quarter 2024 results, despite RBC Capital’s belief in the company’s positive growth prospects. Lockheed Martin secured a $270M contract with the U.S. Air Force for F-22 upgrades, and completed the delivery of 10 S-70i Black Hawk helicopters to the Philippines. The company also exceeded estimated third-quarter earnings per share, reporting an EPS of $6.80, and raised its full-year 2024 revenue guidance to approximately $71.25 billion. Truist Securities initiated coverage of Lockheed Martin, assigning it a Buy rating. Lockheed Martin also announced leadership changes, launched a new subsidiary, Astris AI, and refuted rumors of a potential cancellation of its $1 trillion F-35 fighter jet contract. These are recent developments at Lockheed Martin.
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