Goldman Offers 3 Positives, 3 Negatives On Lockheed

Goldman Sachs’ Noah Poponak views the defense sector as attractive and Lockheed Martin Corporation (NYSE: LMT) as “the bellwether and owns one of the Pentagon’s fastest growing programs in the F-35.”

Poponak reinitiated coverage of the company with a Neutral rating and a price target of $245.

However, the analyst pointed out that the remainder of Lockheed Martin’s portfolio was not really differentiated, and there were earnings and cash flow headwinds as compared to the current consensus expectations.

The Positives

Among the positives for the company, Poponak mentioned that defense budget was at a trough, with 2016 being the first year of Department of Defense investment growth in eight years, and Lockheed Martin is the “bellwether.”

“LMT is the prime on the F-35, which grows quickly through the end of the decade, allowing total LMT revenue to grow faster than the industry,” the analyst mentioned.

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In addition, Poponak believes that the addition of Sikorsky and the removal of IS&GS would lead to a business with net higher long-term growth and margin.

The Negatives

On the other hand, the analyst expressed concern that there were few major growth differentiators for the company after F-35, while there were headwinds in Aeronautics, including F-16 and C-5.

“The final LDOS RMT numbers are likely dilutive to 2016, so guidance will come down. The $1.5 billion 2018 cash pension contribution means lower 2018 free cash and a weaker 5-year cash trajectory than peers,” the analyst noted.

Finally, Poponak stated that Lockheed Martin’s stock was more expensive that other defense stocks.

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