Morgan Stanley lifts Lockheed Martin stock rating, target to $575

On Wednesday, Morgan Stanley (NYSE:MS) upgraded Lockheed Martin shares (NYSE:LMT) from Equalweight to Overweight, setting a new price target of $575, up from the previous $525. This adjustment reflects a more favorable view of the stock’s potential performance. According to InvestingPro data, Lockheed Martin currently trades at $469.58, with analyst targets ranging from $424 to $670, suggesting significant potential upside in line with Morgan Stanley’s bullish stance. The defense contractor’s shares have not kept pace with its industry counterparts year-to-date, showing a slight decline of about 1.6% compared to a median increase of approximately 6% among peers. Despite being a prominent player in the Aerospace & Defense industry with a market capitalization of $110 billion and maintaining a strong 5.14% revenue growth, concerns have lingered around the F-35 program and significant pre-tax program charges in the last quarter, impacting investor sentiment.

Morgan Stanley analysts noted that Lockheed Martin, with approximately 27% of sales and 30% of its backlog coming from international business, is well-positioned to benefit from an anticipated rise in defense exports. Despite some countries showing reluctance in their F-35 commitments, the analysts believe that the demand for the advanced fighter jet will remain strong globally. They argue that there are limited alternatives to the F-35, which is considered the most sophisticated aircraft of its kind.

The recent losses in the company’s Missiles and Fire Control (MFC) segment, which accounted for over 75% of the fourth quarter 2024 charges, are now seen as a past issue. The firm indicates that this should no longer weigh heavily on Lockheed Martin’s financial outlook.

Additionally, the valuation of Lockheed Martin’s stock appears attractive to Morgan Stanley, especially when compared to its Defense Prime group peers. The stock is currently trading at roughly a 10% discount to the group, suggesting a potential undervaluation. InvestingPro analysis indicates the stock is currently undervalued, with additional metrics showing a P/E ratio of 21 and an EBITDA of $8.4 billion for the last twelve months. For deeper insights into Lockheed Martin’s valuation and access to comprehensive financial metrics, investors can explore the detailed Pro Research Report available on InvestingPro, which covers over 1,400 US stocks.

Investors may find Morgan Stanley’s updated stance on Lockheed Martin as a signal of the stock’s potential for growth amidst the evolving landscape of international defense contracts and the company’s strategic positioning within the sector. The company has demonstrated strong financial health with a 2.81% dividend yield and has maintained dividend payments for 42 consecutive years, according to InvestingPro data, which offers additional ProTips and in-depth analysis for informed investment decisions.

In other recent news, the U.S. State Department has approved a potential $5.6 billion sale of Lockheed Martin’s F-16 fighter jets to the Philippines, which includes 20 jets and additional equipment like missiles and radars. This move is aimed at strengthening the strategic partnership with the Philippines, a key Southeast Asian ally. Additionally, Lockheed Martin has secured a $600 million contract modification from the U.S. Department of Defense for support related to missile programs, increasing the contract’s total value. In another development, SpaceX and United Launch Alliance (ULA) are expected to win significant contracts from the U.S. Space Force to launch sensitive satellites, reinforcing their roles in national security missions. These contracts are part of a Pentagon program to bolster U.S. space capabilities. The Trump administration is reportedly preparing to ease regulations on military equipment exports, potentially raising the dollar thresholds that trigger congressional review. This executive order could impact the arms export process significantly. Meanwhile, optimism in the defense sector has driven stock gains for companies like Booz Allen (NYSE:BAH) Hamilton, CACI International, KBR (NYSE:KBR), and Leidos, following reports about Elon Musk’s advisory role with the government.

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