Here's When We'd Add to Our Lockheed Position
We see signs of a rising backlog and greater earnings visibility for Lockheed in the coming quarters.
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* While Lockheed remains well positioned over the long term, we’re still waiting for F-35 deliveries to ramp.
* Here’s where we would consider rounding out the portfolio’s LMT position.
Yesterday, Lockheed Martin LMT reported March quarter results that bested top and bottom-line expectations, led by the 13.7% year-over-year increase in revenue, and reaffirmed its 2024 outlook that bookends the Wall Street consensus.
Backlog exiting the March quarter was slightly lower compared to year-end 2023, but as we’ve discussed in the last few weeks, Lockheed has racked up multiple big wins, including the $17 billion contract to develop the next generation of interceptors that would guard the United States against an intercontinental ballistic missile attack. Outside the U.S., the current geopolitical environment should continue to foster additional wins for Lockheed.
To that we can add the Senate passing last night a $95 billion foreign aid bill, delivering billions of dollars in weapons and support to key U.S. allies Ukraine and Israel. President Biden is expected to sign that bill later today with the corresponding aid expected to be underway in the coming days. All of that points to a rising backlog and greater earnings visibility for Lockheed in the coming quarters.
Despite Lockheed’s March quarter earnings beat, management kept its previously issued 2024 guidance of $68.5 billion-$70.0 billion in revenue and EPS of $25.65-$26.35 intact. The lack of an upward revision reflects updated expectations for F-35 deliveries to commence in Q3 2024. Lockheed will continue to keep producing F-35s and targets delivering 75-110 this year, which we take as being predominantly in the fourth quarter.
Our position on a re-ramp of the F-35 has been and continues to be “when” not “if” considering its backlog at the end of March of $159 billion including 373 F-35s. The 2024 defense budget has several positives for Black Hawk, CH-53K heavy lift helicopter, the fleet ballistic missile, the C-130, and other programs. And while we are only in the early stages of an initial defense budget request for 2025, it looks to continue the support for many of those programs.
For now, we’ll keep our LMT price target of $520 in place as well as our Two rating. We’ll look to revisit both as we start to see Lockheed ship F-35s, a positive catalyst for revenue and EPS expectations, and our shares.
At roughly 3.66% of the portfolio’s assets, we have a sizable LMT position in the portfolio, but should the shares find their way to the low $440s, we may elect to scoop up some additional shares. As of now, there is strong support between $437-$441 for the shares.
At the time of publication, TheStreet Pro Portfolio was long LMT.
