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4 Reasons Behind Cowen's Lockheed Martin Upgrade

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4 Reasons Behind Cowen's Lockheed Martin Upgrade

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

The Analyst

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

The Thesis

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. 

Price Action

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

Related Links:

North Korea To Denuclearize: Are Defense Stocks In Trouble?

Credit Suisse: Pension Income, Potential Budget Slowdown Neutralize Defense Manufacturers

U.S. Army photo via Wikimedia. 

Latest Ratings for LMT

DateFirmActionFromTo
Aug 2019MaintainsEqual-Weight
Jul 2019DowngradesBuyHold
Jul 2019MaintainsNeutral

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Posted-In: Cai von Rumohr Cowen Defense Contractors F35Analyst Color Upgrades Price Target Analyst Ratings Best of Benzinga

 

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