Key Points
Morgan Stanley analyst Kristine Liwag is most optimistic about Lockheed Martin, upgrading the stock to overweight.
F-35 sales are soaring, and missile sales, too.
The big question is whether LockMart can maintain its margins?
Lockheed Martin (NYSE:LMT) stock just keeps flying higher.
Shares of the defense and aerospace giant jumped another 3.3% through 12:35 p.m. ET Monday after three separate Wall Street analysts chimed in with support for LockMart this morning. Let's take those in order:
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Image source: Lockheed Martin.
Wall Street loves Lockheed Martin stock
First up is Morgan Stanley analyst Kristine Liwag, who cites Lockheed's 10-year production contract with the Air Force to produce F-35 fighter jets at the rate of 156 aircraft per year as "reducing downside risk and providing visibility for its supply chain." At the same time, Liwag sees missile production boosting revenues in the mid-teens for the next five years.
Together, the analyst sees these developments pushing Lockheed stock up to $835 per share over the next year -- and deserving an upgrade to "overweight" (i.e., buy).
Bank of America and JP Morgan take a more cautious stance. Both kept their ratings on the defense giant at neutral today -- but raised their price targets regardless, to $620 per share and $665, respectively, as StreetInsider.com reports.
What's next for Lockheed Martin stock
Of the three, Bank of America analyst Ronald Epstein takes the most conservative position. Epstein likes the company's F-35 franchise and its larger contribution to Lockheed's revenues. He does worry, however, whether the increase in production at (presumably) bulk rates might depress Lockheed's profit margins?
That's a valid concern. Although aeronautics (the division that produces the F-35) is Lockheed's largest business, with $30.6 billion in annual revenue, it's already one of the company's less profitable divisions, generating operating profit margins below 7% last year. (The missiles division, in contrast, earned 13% margins!)
So more F-35 revenue could be a double-edged sword for Lockheed stock. Regardless, at a price-to-free cash flow ratio of less than 17x, a long-term earnings growth rate near 18%, and a dividend yield of 2.4%, Lockheed stock is cheap enough to be worth the risk.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lockheed Martin. The Motley Fool has a disclosure policy.