Melius cuts Lockheed Martin stock rating to Hold, lowers target

On Monday, Melius Research downgraded Lockheed Martin (NYSE:LMT) stock from Buy to Hold amid increasing competition and geopolitical shifts. The stock, currently trading at $439.70 and near its 52-week low, appears fairly valued according to InvestingPro’s comprehensive Fair Value analysis. With a market capitalization of $103.5 billion, Lockheed Martin remains a prominent player in the Aerospace & Defense industry. Analysts at Melius highlighted that Lockheed Martin’s future growth prospects are becoming more uncertain due to a series of competitive losses and growing efforts in Europe to decrease dependence on U.S. defense contractors. This could potentially restrict Lockheed’s export opportunities.

Lockheed Martin, known for its F-35 fighter jets, has reached peak production rates for the aircraft. The company, which generated revenue of $71 billion in the last twelve months with a modest 5.14% growth rate, has faced setbacks as it lost to Northrop Grumman (NYSE:NOC) and Raytheon (NYSE:RTN) in securing key defense contracts. InvestingPro analysis reveals challenging gross profit margins of 9.88%, supporting Melius’s concerns about competitive pressures. Northrop Grumman won the contracts for the Stand-In Attack Weapon and Glide Phase Interceptor programs. Meanwhile, Raytheon was selected over Lockheed for the Long-Range Standoff Weapon program. Additionally, Lockheed was outperformed by Textron (NYSE:TXT) in the bid for the $70 billion Future Long-Range Assault Aircraft program, which aims to replace the Black Hawk helicopters.

These losses have led Melius to adjust their sales growth assumptions for Lockheed Martin and to reduce their target multiple to 17 times from the previous 21 times their 2027 ex-pension earnings per share estimate. Consequently, Melius has set a new price target for Lockheed Martin shares at $483, a decrease from the prior target of $603. This new target is based on their revised 2027 ex-pension EPS estimate of $28.39, slightly down from the former estimate of $28.70.

Lockheed Martin had a significant win last year with the $18 billion Next-Generation Interceptor missile defense program. Despite this, the recent string of competitive losses presents challenges to the company’s long-term growth strategy. These developments are reshaping the outlook for Lockheed Martin as it navigates a changing defense landscape with heightened competition and shifting international relations. Despite these challenges, the company maintains strong shareholder returns with 22 consecutive years of dividend increases and a current yield of 3%. For deeper insights into Lockheed Martin’s financial health and future prospects, InvestingPro offers exclusive access to 10+ additional ProTips and a comprehensive Pro Research Report, helping investors make informed decisions in this evolving market environment.

In other recent news, Lockheed Martin is at the center of several significant developments. The company is in ongoing negotiations with Turkey’s defense ministry for a $23 billion sale involving 40 F-16 jets and modernization kits for 79 existing jets. This deal could be influenced by the U.S. administration’s potential decision to lift sanctions on Turkey, contingent upon Turkey’s handling of its Russian S-400 system. In parallel, Lockheed Martin is also awaiting a major announcement from the White House regarding the Next (LON:NXT) Generation Air Dominance (NGAD) fighter jet contract, a decision that could greatly impact its business.

Meanwhile, Lockheed Martin has successfully integrated its AN/TPQ-53 radar system with U.S. Southern Border command and control systems, enhancing border security capabilities. This radar system is part of the U.S. Northern Command’s mission to secure the southern border. Additionally, Canada is reassessing its contract to purchase 88 F-35 jets from Lockheed Martin amid tensions with the U.S. government, a move that might affect other business relationships, including those with Bombardier (OTC:BDRBF).

Bombardier’s CEO, Eric Martel, has expressed concerns that U.S. contracts could be jeopardized if Canada cancels the C$19 billion F-35 deal. These developments highlight Lockheed Martin’s critical role in international defense contracts and underscore the complex geopolitical factors influencing its business operations.

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