Goldman Sachs Upgrades Northrop Grumman, General Dynamics & Downgrades L3Harris, Lockheed Martin

Goldman Sachs analyst Noah Poponak updated his ratings for several Aerospace & Defense stocks.

L3Harris Technologies Inc LHX downgraded to Sell from Neutral with a $207 price target, implying a downside of 7.17%. Poponak believes a deceleration in the U.S. defense budget growth rate will likely translate to a multi-year slowdown in L3Harris's sales. 

Poponak further adds merger integration-driven margin upside has now mainly likely played out. With the stock significantly outperforming its large-cap defense peers over the last six months, Poponak no longer sees a "relative valuation gap" in the stock.

Lockheed Martin Corp LMT downgraded to Neutral from Buy with a $402 price target, implying an upside of 16.73%.

The analyst continues to view Lockheed as a "best-in-class Defense prime with a strong management team." However, the slowing budget environment makes it difficult for Lockheed's diversified portfolio to grow sales, and there is uncertainty around the timing and rate of the plateau of the F-35 program.

Northrop Grumman Corp NOC upgraded to Neutral from Sell with a $350 price target, implying a downside of 0.44%. 

Of the large-cap defense players, Northrop increasingly appears best exposed to many budget categories that look likely to experience outgrowth, primarily within space, Poponak notes. However, the analyst views Northrop's relative valuation as "somewhat stretched" at current share levels.

General Dynamics Corp GD upgraded to Neutral from Sell with a $176 price target, implying a downside of 10.86%. The analyst has a more favorable view of the business jet and notes that Gulfstream accounts for nearly one-third of the company's EBIT. However, he continues to believe the defense business is "less well-positioned" than other primes and favors small/mid-cabin business jets within that end-market.

Price Action: LHX shares are trading higher by 0.03% at $222.80, LMT higher by 0.81% at $344.49, NOC higher by 0.86% at $351.53, and GD higher by 2.07% at $197.69 on the last check Thursday.