Will Analyst Boost Send Lockheed Martin Shares Up, Up and Away?

Key Points

• Analysts are boosting their price targets for Lockheed Martin after the company beat on earnings and revenue in its first quarter 2023 earnings report. 
• Prior to the earnings report, LMT stock had been trading at an all-time high. 
• The company’s positive earnings report was entirely due to growth in its Space division.  
• Lockheed Martin, the world’s largest defense contractor, did provide initial estimates for defense spending in the federal budget. 
• Supply chain issues are expected to continue throughout 2023 as the company previously guided. 

Lockheed Martin Corporation NYSE: LMT scored a double beat in its first-quarter earnings report. And analysts are impressed. The morning after the announcement, Citigroup, Inc. NYSE: C and Credit Suisse Group AG NYSE: CS boosted their price targets for LMT stock to $579 and $550, respectively. Either number would be a double-digit gain from the stock’s current price, which is hovering around $500 the day after earnings. 

Prior to the earnings report, shares of the defense contractor had jumped 3.8% to an all-time high of over $507 per share. Since the announcement, shares have fallen back by approximately 1.6%; that move is likely due to the pullback in the overall market.  

Analyst ratings are one way for individual and institutional investors to gauge the prevailing sentiment about a stock based on current market conditions as well as specific issues related to a particular industry. Analysts generally have access to information that many retail investors do not. So when analysts take a bullish stance after earnings, it’s because they feel confident in the company’s performance in the next 12 to 18 months.  

What Did Lockheed Martin Report? 

The company delivered earnings per share (EPS) of $6.43, which easily beat analysts' expectations of $6.06. On the top line, Lockheed posted revenue of $15.13 billion against expectations of $15.01 billion. The company also posted an 11% increase in free cash flow (FCF) to $1.3 billion. All of that FCF was returned to shareholders in the form of either share repurchases and dividends.  

The reason for the games was due to a strong gain in revenue from the company’s Space division which increased from $2.559 billion to $2.959 billion. The other three primary business units: Aeronautics, Missiles and Fire Control, and Rotary and Mission Systems, all posted slight declines in revenue for the quarter. 

However, the company did provide an initial outlook on the federal government’s initial 2024 defense budget, which is showing a 3% increase in spending. Keep in mind that Lockheed Martin is the nation’s largest defense contractor. 

The Supply Chain is Still a Challenge 

On the earnings call, management noted that there are still “pockets” of the business that are seeing supply chain challenges. The company reiterated its previous guidance that it doesn’t perceive a notable change in the current supply chain until 2024. This makes sense when you consider that the defense contractor’s business units require so many materials and components that require long lead times, such as semiconductors, rare earth elements, and specialty metals.  

Should You Buy into This Rally? 

How you answer this question depends on how you feel about the growth outlook. The ongoing war between Russia and Ukraine as well as rising geopolitical concerns, will put a floor on the company’s revenue. And although the U.S. budget will become an increasing source of intrigue, there’s no indication that either party has an appetite for making cuts that would affect a company that provides the technology that Lockheed Martin does.  

But earnings and revenue are both expected to grow at a single-digit rate in the next five years. And LMT stock is trading at about 18x forward earnings. And as the company noted, the continued growth of its free cash flow means the dividend will be solid. Currently, that dividend pays out $12 per share on an annual basis. And Lockheed has increased that dividend in each of the last 20 years.  

With all that said, this is a range-bound market. But fortunately for LMT shareholders, LMT stock is trading not only near its 52-week high, but any high after that will be a new all-time high. That compares nicely with the S&P 500, which is also trading in the upper end of its 52-week range.