4 Reasons Behind Cowen's Lockheed Martin Upgrade - Lockheed Martin (NYSE:LMT)

Cowen gave four reasons for its newly bullish stance on Lockheed Martin Corporation LMT Wednesday.

Cowen's Cai von Rumohr upgraded Lockheed Martin from Market Perform to Outperform with an unchanged $370 price target.

The case for buying the maker of the stealth tactical fighter F-22 Raptor is fourfold, von Rumohr said in the upgrade note.

The defense contractor's second-quarter report was "super" and prompted an upward revision in guidance on the basis of higher-than-expected win rates, early funding from new awards and higher Department of Defense spending, she said.
Lockheed Martin should see benefits from both House and Senate appropriation increases for multiple programs, including the F-35, Black Hawk, LCS and C-130J, the analyst said. In the international market, the company could see new sales from Slovakia and Bahrain, von Rumohr said. The momentum in 2019 should continue through 2021 and generate a 10-percent compounded growth rate, she said.
Multiple concerning headlines tied to the F-35, including a pushback on sales to Turkey; competition from the Tempest fighter; and the potential peaking of F-35 revenue are likely "overblown," von Rumohr said. Turkey is in fact a co-producer of F-35s; the Tempest is a twin-engine air superiority fighter that is much more expensive than the single engine F-35; and if F-35 revenue peaks in 2023, the company will still see business from software updates and other add-ons, the analyst said.
Finally, Lockheed Martin's stock offers an attractive risk-reward profile, with a 2.5-percent dividend yield and 6.3-percent cash flow yield, von Rumohr said. The Street's 38-percent net Buy rating versus 70-percent for peers implies an opportunity for investors at a time when there is "broad sell-side skepticism" in the stock, she said.

Lockheed Martin shares were trading up 0.68 percent at $324.75 at the time of publication Wednesday.

U.S. Army photo via Wikimedia.