Lockheed Shares Take Flight Reaching All-Time Highs

Shares of aerospace and defense giant Lockheed Martin NYSE: LMT continued their march into all-time highs on Tuesday as the buying spree continued. They’ve been on an absolute tear since the last week of December, notching over 13% in the interim. This move comes on top of the 50% move they made in 2019.

The threat of escalations in tensions between the US and Iran earlier this month was the initial spark to the most recent rally. With the American assassination of Iranian general Soleimani on 3 January, Lockheed’s stock popped 6% in just two days. By the time the Iranian’s retaliated by sending missiles into US bases in Iraq on 8 January, Lockheed and many other big defense names like Kratos Defense NASDAQ: KTOS, Northrop Gruuman NYSE: NOC and Raytheon NYSE: RTN were all catching a strong bid from Wall Street.

On top of this, the company’s Q4 earnings, released before yesterday’s bell, have added fuel to the fire. The headline EPS and revenue numbers both comfortably beat analyst expectations with the former showing a jump of 21% and the latter showing a jump of more than 10% year on year. For a traditionally slow-moving industry, this kind of growth in a $125 billion company is impressive. They’re also entering 2020 with a record backlog of $144 billion to keep them busy.

Lockheed’s CEO Marillyn Hewson commented with the release that "the corporation delivered outstanding performance throughout 2019, achieving exceptional sales growth, strong earnings, cash from operations, and a record backlog. As we look ahead to 2020, we remain focused on providing innovative global solutions for our customers, investing for growth across our portfolio, and generating long-term value for our shareholders."

Winning Contracts & Leading The Pack

If the start of this year has been great for the stock, the end of last year was great for the fundamental drivers of the company. They announced on the penultimate day of 2019 that they exceeded their target of delivering 131 F-35 fighter planes. The 134 that they ended up delivering came amidst a booming demand as the company built 47% more jets in 2019 than in 2018. They plan to deliver 141 F-35s in 2020 and at $80 million a plane, that’s a pretty penny to have on the horizon.

Also in December, they were awarded two Pentagon contracts worth close to $9 billion. Two months prior in October, they landed a $4.5 billion contract from NASA to build six Orion spacecraft. All these headlines have helped cement Lockheed’s position at the front of the pack and it’s no surprise that their shares are outperforming everybody else in the space over multiple time periods.

In the past two decades, Lockheed’s stock is up over 2,400%. Northrop is up 1,700%, Raytheon is up 1,100% and Kratos is down 99%. In the past twelve months, Lockheed is up 50%, Northrop and Raytheon are up 38% while Kratos is up 22%. As we head into a new decade, all signs point to Lockheed continuing to lead from the front and it looks as if Wall Street is expecting as much.

Getting Involved

All that being said, the stock is starting to look a little hot and frothy after its most recent run. Its RSI is at 80 on both the daily and weekly charts so investors shouldn’t be surprised if there are some profit-taking and consolidation in the near future. The first line of defense would be around $410. After that there’s solid support around the $400 mark and given the internal momentum underway, any pullback should be considered a gift of a buying opportunity.

CNBC published a study earlier this month that suggests defense stocks easily outperform the broader market by as much as double in the 6 months following a crisis event. So far, Lockheed looks eager to prove them right.