Lockheed Martin's Product Portfolio Covers All The Bases

Initiating coverage of Lockheed Martin Corporation LMT with an Outperform rating, Baird said it believes the company's valuation should maintain its current premium to reflect improving Department of Defense budget, ramping JSF program and robust buybacks.

Analyst Peter Arment noted that its product portfolio covers all key areas and continues to benefit from growth in Aeronautics, Missiles and Fire Control and Mission Systems segments. The analyst believes the Aeronautics segment, tied to F-35, will be the main driver, going forward.

Baird noted that the company derives about 60 percent of its Aeronautics revenues and 21 percent of total company sales from F-35. With production expected to ramp up to over 100 annual deliveries by 2020 from about 45 in 2015, the firm said the company's revenues could de-couple to the upside from the base line projections of the DoD budget over the long term.

The firm also commented on the company's robust backlog, with the second quarter of 2016 having a backlog of $96.4 billion.

Estimates

Baird forecasts earnings per share of $13, $14.35 and $16 for 2017, 2018 and 2019, respectively. Given the muted outlook for pension income due to depressed interest rate environment during July, the firm said it expects higher 2017 pension income than forecast.

Baird has a $284 price target on the shares.