RBC Hikes Lockheed Martin To Outperform, Sees Major Upside In 2017

RBC Capital Markets on Wednesday issued a company report on Lockheed Martin Corporation LMT after reports that the Department of Defense FY16 budget outcome was better than expected. RBC Capital Markets upgraded Lockheed Martin to Outperform and raised their price target from $220 to $250.

Analyst Robert Stallard wrote, "As the largest of the US prime contractors, we think investors view Lockheed Martin as the bellwether of the defense sector, and the overall health of the DoD budget...Record low-interest rates, and Lockheed's focus on paying a sector leading dividend, have helped the stock in recent years...the benefit to Lockheed's FAS pension expense over time should help EPS estimates."

RBC believes that an increase in defense spending will have a direct impact on Lockheed Martin by increasing delivery volumes and raising the company's Aeronautics margins. While increasing interest rates may prove to be a challenge for the company's capital intensive product offerings, most interest rate increases should be small and gradual with a majority investor sediment already priced into the stock.

Furthermore, RBC analysts have focused on the F-35 Joint Strike Program which could provide upside as an increased number of fighter jets could be sold, but also serve as downside potential if the program fails to produce the sales that are expected.

Overall, while RBC notes that the defense industry is competitive Lockheed's business strengths and the potential for a sector beating dividend look to be an attractive investment opportunity with major upside in 2017.