TD Cowen downgrades Lockheed Martin, warns on prolonged F-35 uncertainty

Published 10/07/2025, 14:28
© Reuters.

Investing.com -- TD Cowen downgraded Lockheed Martin (NYSE:LMT) to Hold saying the ongoing issues with its flagship F-35 program and fresh execution risks that may weigh on earnings and free cash flow in the near term.

The brokerage cut its rating from Buy and maintained a $480 price target, implying the stock could remain range-bound for over a year.

The F-35, which accounts for roughly a quarter of Lockheed’s sales and profit, faces delays in key software upgrades and potential pressure from U.S. defense budget cuts.

TD Cowen said the full rollout of the F-35’s TR-3 software, needed to make new aircraft combat-capable, may not be completed until the first half of 2026, slowing cash collections.

Meanwhile, the U.S. Air Force has requested 20 fewer F-35s in its fiscal 2026 budget, and it remains unclear whether procurement in future years will return to prior expectations.

While foreign demand or Congressional add-backs could offset the reduction, analysts warned that the overhang will persist unless proven otherwise, muting prospects for a re-rating of the stock.

Beyond the F-35, Cowen flagged potential charges in Lockheed’s aeronautics segment tied to a recent Next (LON:NXT) Generation Air Dominance (NGAD) contract loss and cost overruns on a classified program that has already racked up more than $500 million in charges.

The firm expects second-quarter earnings to fall about 5% below consensus and said management may trim full-year guidance.

Lockheed’s failure to sign the Lot 18/19 F-35 contract during the quarter could also result in a $1 billion free cash flow shortfall versus market expectations, further limiting upside on the upcoming Q2 print.

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