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Lockheed Martin Stock Benefits from World Conflicts
Stock Analysis & Ideas

Lockheed Martin Stock Benefits from World Conflicts

Shares of Lockheed Martin (LMT) have soared in recent months, gaining about 25% year-to-date at a time when the broader market has mostly been in decline. After such gains, you may be wondering whether LMT stock is still a good investment.

U.S.-based Lockheed is the world’s largest defense contractor. In addition to making weapons such as missiles, it also provides cybersecurity and other technology solutions.

Lockheed’s decision to abandon its bid to acquire Aerojet Rocketdyne (AJRD) because of an antitrust issue left many investors wondering if the move would diminish its prospects. However, Lockheed’s business outlook remains promising.

Lockheed’s Q1 Earnings Numbers Don’t Tell the Whole Story?

A quick glance at Lockheed’s Q1 2022 earnings may not reveal a great story. Revenue of $14.96 billion dropped 8% year-over-year and fell short of the consensus estimate of $15.55 billion. Meanwhile, earnings per share (EPS) of $6.44 declined from $6.56 for the same quarter last year but exceeded the consensus estimate of $6.21.

If you judge Lockheed only by the numbers it reported for Q1, you may miss the point and deny yourself a potentially great opportunity. The company faced supply chain and inflation headwinds that hurt its performance in the quarter. Despite the rough start to the year, Lockheed reaffirmed its 2022 full-year revenue target of $66 billion.

War Boosts Sales for Lockheed

Russia’s invasion of Ukraine has woken many countries to the need to upgrade or enhance their defense capabilities. As a result, many countries, especially across Europe, are boosting their military spending. They’re increasingly turning to Lockheed for superior defense systems. 

Germany, for example, plans to purchase about three dozen fighter jets of the F-35 type from Lockheed. The country presents an even greater business opportunity for Lockheed given its €100 billion military upgrade spending package.

Beyond Europe, Canada is also upgrading its defense capability and has identified Lockheed as the preferred bidder to supply it with modern fighter jets. The contract could be worth about $15 billion.

At Lockheed’s Q1 earnings call, CEO Jim Taiclet talked about how the war in Ukraine was fueling demand for the company’s defense products. 

Taiclet said, “We’ve got demand signals for THAAD and PAC-3 from around the world…countries everywhere are recognizing that, especially when you see missiles hitting hospitals and situations like that and train stations in Ukraine, that it’s worthwhile to have an effective missile defense capacity in your country.”

Indeed, Lockheed is boosting its manufacturing to meet the growing demand for its products. The company plans to nearly double production of its Javelin missiles to 4,000 a year. The Javelin missile has been instrumental in helping Ukraine fight off Russia’s invasion. 

President Joe Biden recently signed a law that would make it easier for the U.S. to send weapons to Ukraine. At the same time, the White House has asked Congress to approve a $33 billion budget for Ukraine aid, which includes weapons. Lockheed has discussed with the Pentagon about increasing production of Ukraine-destined weapons.

Wall Street’s Take

The rest of the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating. That’s based on seven Buys versus seven Holds. The average Lockheed Martin price target of $503.14 implies 13.42% upside potential to current levels. 

Blogger Opinions

TipRanks data shows that financial blogger opinions are 96% Bullish on LMT, compared to a sector average of 68%.

Final Thoughts

In addition to the Russian threat, Iran’s behavior is another reason countries would want to bolster their defenses. Lockheed CEO Taiclet also mentioned Iran at the company’s recent earnings call while discussing threats driving defense spending. 

In 2021, global military spending topped $2 trillion for the first time, according to a report by the Stockholm International Peace Research Institute. The report shows that European countries began boosting their defense spending after Russia annexed Crimea in 2014. The war in Ukraine and the Iranian threat should only fuel defense spending around the world, generating more business for Lockheed.

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