We're Resizing Our Price Target for This Holding Under Pressure

After digesting the company’s earnings call, we are lowering our price target on Lockheed Martin LMT shares to $575 from $650, keeping our One rating intact.

That reset stems largely from pension obligation and higher interest expense, which reduces the impact of stronger-than-expected top line and operating profit growth from falling to Lockheed’s bottom line this year.

Our focus will remain on program wins, backlog growth and margin prospects, drivers of profits, cash flow and EPS. The outlook for those drivers remains favorable, especially with more F-35 program wins coming this year. While we focus on operating profit growth, we cannot ignore these below-the-line items and their impact on the company’s expected EPS. Arguably, assessing growth in Lockheed’s earnings before interest tax, depreciation and amortization may offer a more favorable yardstick for this year, we have to recognize the market still favors EPS and EPS-based valuations. Hence, the drop in the shares on Tuesday following the company’s 2025 EPS guidance of $27.00 to $27.30 versus the $27.88 market consensus.

In keeping with our reset price target, we will also reset our panic point to $445 from $470. We expect to see EPS figures and other price targets adjusted lower and that could bring some additional pressure on LMT shares in the coming days. However, once that has washed over the shares, we suspect we will see the return of more value-oriented investors. At that point, the combined pullback may present a nice opportunity for new members or those whose LMT exposure is less than the Portfolio’s.

In terms of the all-important F35 program, Lockheed delivered 62 aircraft in the quarter, bringing its 2024 total to 110. For this year, the company is expected to deliver another 170 to 190 of that aircraft, driving favorable cash flow dynamics in the process. Because Lockheed has been delivering previously parked F35s, its production rate for this year is slotted to be 156 aircraft. In terms of the TR-3 deliverables, management comments Lockheed is making good progress against set milestones, but the fiscal impact is likely to be higher in 2026 than this year. During the first half of this year, lot 18 for F35s should be finalized with lot 19 expected to be set in the second half of the year.

Both awards should bring further growth in Lockheed’s backlog levels and far more multiyear visibility as should international F35 and other program wins. On that front, management called out Romania’s recent order for 32 F35s, which follows others from Israel, Italy, Greece and the Netherlands. In the past F-35 orders had been allowed from Turkey, United Arab Emirates, Egypt and Morocco but each of those had been cancelled. We’ll want to watch and see if that changes under the Trump administration.

Coming off the social media attack by Elon Musk a few months ago, Lockheed management pushed back, sharing it can control up to eight autonomous drones out of an F-35 and other programs that could allow for manned and unmanned teaming between aircraft. With AI adoption still a hot topic, Lockheed shared it is working with Nvidia NVDA for artificial intelligence, and with Meta META and IBM IBM for large language models to more efficiently generate code, analyze data and enhance business processes. This suggests we could see more operating leverage emerge in the coming quarters, potentially leading 2025 EPS to come in slightly better than the company’s initial target of $27.00 to $27.30.

A Note of Caution

While the outlook for Lockheed remains bright, we have to be mindful of potential hiccups.

The current continuing resolution funds U.S. government operations through March, and that means defense spending could become a hot button as both sides of the aisle look to hammer out a fresh funding deal. While our thought is that Trump recognizes a strong military is an effective deterrent, efforts to cut costs and streamline procurement processes could result in headline-related volatility. That will see us focus on program wins, backlog growth and margin prospects.

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At the time of publication, TheStreet Pro Portfolio was long LMT, NVDA and META.