Market Overview

Lockheed Martin Corporation Easing Back After A Breakout

Lockheed Martin Corporation Easing Back After A Breakout

Lockheed Martin Corporation (NYSE: LMT) has been a true leader in the aerospace/defense sector. After making new highs in July and August, the stock has been in consolidation mode over the last two weeks. Where to next?

Lockheed Martin shares have been a multi-year leadership stock for not only the aerospace and defense sector, but also for the broader U.S. stock market. The stock has risen from $66.87 in August of 2011 to two and a half times that share price at the highs recently.

Lockheed's performance has been striking, especially in an environment where military spending is supposedly on the decline.

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The Bulls Vs. The Bears

The bulls love the technical strength on display by Lockheed Martin shares and are likely to remain in “buy the dip” mode until the long-term uptrend line is violated on the downside. The bulls also like Lockheed's profit margins, cash flow numbers and the cheap price-to-sales ratio at 1.23.

The bears characterize Lockheed as simply over-priced, over-leveraged and showing no real revenue growth based on next year's estimates. The company has a price-to-book ratio of 12.73 (versus “fairly valued” at three) and a P/E ratio of more than 15 (based on next year's EPS projections), while its revenue growth is actually expected to decline and earnings are only expected to be up 7 percent.

Add to the valuation problems the fact that the debt-to-equity ratio is 143 percent and the bears rest their case.

Reading The Chart

What does the chart indicate?

Technicians note that Lockheed is in a strong uptrend and say that dips are to be bought whenever possible. The nearest support levels for the shares come in at $171.36 and $168.08, both of which are horizontal lines of support. The long-term uptrend line doesn't come into play until the $166 - $167 range.

Only a break below that uptrend line would turn the focus to selling rips in Lockheed shares. The upside target for new longs won't come into play until the upper end of the uptrend channel, which is estimated to come into play at around $200 per share.

For now, Lockheed Martin stock is likely to be gobbled up by eager buyers unless and until the uptrend is broken.

Stock chart: 
Stock chart

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