Nine straight days of losses for Lockheed Martin (NYSE: LMT) came thudding to a close on Friday, with the defense stock dropping a final 4% to close out earnings week. And while Lockheed’s stock market losses had no obvious catalyst before — now they clearly do.
As I wrote yesterday, Lockheed Martin missed on both sales and earnings, reporting per-share profit $0.30 below analysts’ forecasts — and negative free cash flow for the quarter. Sales flatlined year over year, and Wall Street isn’t happy about that.
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The next shoe dropped Friday morning, with four analysts lining up to cut price targets on Lockheed. Susquehanna — the most optimistic of the bunch — lowered its target only to $700, a number that still implies Lockheed shares could rise 38% this year. But Morgan Stanley cut deeper to $653, Bank of America said $600, and RBC Capital thinks the stock is worth at most $575.
So the most pessimistic take still sees Lockheed stock as worth 13% more than it costs today — yet even RBC cannot bring itself to recommend buying Lockheed stock, rating it only “sector perform.”
As RBC explains today in a note on StreetInsider.com, its main concern about recommending Lockheed is that “bookings were soft in the quarter.” Lockheed’s book-to-bill ratio was a lowly 0.6.
Ordinarily, a 0.6x ratio would imply Lockheed’s sales are due to decline. But that doesn’t jibe with management’s insistence that it’s been signing multi-year contracts with the Pentagon to treble or even quadruple missile production — and missile sales — nor with Lockheed’s prediction that sales will grow 3% to 6% this year.
My hunch: Sales are due to perk back up. Lockheed stock still looks attractive to me.
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