For one analyst on Wall Street, it’s time to buy stock in the defense giant
The reason has nothing to do with balloons. The growth outlook is improving.
This call has some urgency, too. It’s a rare double upgrade.
Monday evening, Credit Suisse analyst Scott Deuschle upgraded
(ticker: LMT) stock to Buy all the way from Sell without stopping at Hold. It is far more typical to see stocks upgraded, or downgraded, one level at a time.
“The rationale for our upgrade focuses on our [stronger] sector outlook, improved confidence in Lockheed’s growth inflection and [earnings] estimate upside opportunity,” wrote the analyst in his report.
He sees operating profit at Lockheed growing as fast as at
(NOC) which “argues for a relative multiple rerating.” Northrop stock trades for about 20 times estimated 2023 earnings. Lockheed trades for about 17 times.
Wall Street expects Northrop’s operating profit to grow at about 11% a year on average for the coming three years.
Before the upgrade, when Deuschle’s rating on Lockheed rating was Sell, he was worried about a weak ratio of orders to sales. Lockheed, however, has reported orders greater than sales for three consecutive quarters.
Lockheed stock was up 1.7% in premarket trading. Futures on the
gained 0.1%, while
Dow Jones Industrial Average
futures were down 0.2%.
Deuschle’s call is a bullish take on one of the least popular defense stocks. Only 32% of analysts covering Lockheed stock rate the shares at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%.
About 40% of analysts covering Northrop stock rate the shares at Buy. The Buy-rating ratios for defense contractors
(RTX) are 63%, 67%, and 54%, respectively.
Some of the concern about Lockheed, relatively speaking, is the current price/earnings ratio at around 17. Shares have traded closer to 14 times earnings over the past few years, a discount to the market. Some discount was warranted: Sales at Lockheed have dropped for the past few years as some of its fighter jet programs have matured.
Deuschle sees sales growth picking back up, with sales hitting $71.2 billion by 2025, up from $66 billion reported in 2022. The consensus Wall Street estimate for 2025 sales is $70.2 billion.
Coming into Tuesday trading, Lockheed shares were down about 4% so far this year. They are up about 20% over the past 12 months, about 28 percentage points better than the overall market.
Shares are up about 2% since U.S. officials spotted a Chinese balloon floating over the U.S. on Jan. 28.
Write to Al Root at firstname.lastname@example.org