To The Moon

Lockheed Martin (LMT) recently experienced a stock price plunge, with shares dropping around 6-10% following its Q2 2025 earnings report. The decline was primarily driven by a significant earnings miss, with reported earnings per share (EPS) of $1.46 against Wall Street’s expectation of $6.41-$6.54. This shortfall stemmed from $1.6 billion in pre-tax charges, including a $950 million loss on a classified Aeronautics program and a $570 million hit from the Canadian Maritime Helicopter Program. Revenue also slightly missed forecasts at $18.16 billion compared to the expected $18.57 billion. The company slashed its full-year 2025 EPS guidance to $21.70-$22.00 from $27.00-$27.30, further rattling investors. Negative free cash flow of $150 million, contrasted with expectations of $1.2 billion positive cash flow, added to the concerns, largely due to slower F-35 deliveries.

More Pain Ahead?Several factors suggest potential for continued near-term pressure on LMT:Program-Specific Losses: The $1.6 billion in charges, particularly from the classified Aeronautics program and international helicopter programs (e.g., Canada’s CH-148 Cyclone and Turkey’s Utility Helicopter Program), highlight ongoing cost overruns on fixed-price contracts negotiated before post-pandemic cost surges. These could persist if supply chain disruptions or inflation continue.

F-35 Delays: Slower-than-expected F-35 deliveries impacted cash flow, and ongoing negotiations for the F-35 program pose risks. While management expects a rebound in H2 2025, any delays could further pressure financials.

Analyst Downgrades and Sentiment: Post-earnings, analysts like Truist downgraded LMT to Hold from Buy, cutting price targets (e.g., Truist from $554 to $440, UBS from $498 to $453). A Hold consensus from 14 analysts, with an average price target of $497-$555.30, suggests limited upside in the near term. Short interest has also risen by 26.98%, indicating bearish sentiment.

Buy Opportunities?Despite the near-term headwinds, several factors suggest LMT could be a compelling long-term buy:Strong Fundamentals: Lockheed Martin’s $166-$176 billion backlog signals robust demand, driven by global defense spending and geopolitical tensions (e.g., U.S.-Iran, Israel-Iran conflicts). The F-35 program, the largest weapon program in history, ensures stable revenue for decades.

Attractive Valuation: At $418.19 (as of July 25, 2025), LMT trades at ~15x forward earnings with a 3% dividend yield, supported by a 22-year dividend growth streak. This is near historical support levels, making it a potentially undervalued entry point.

Analyst Optimism: Some analysts, like those at J.P. Morgan and Truist Securities, view the sell-off as an overreaction, citing one-time charges masking strong underlying results. They highlight growth catalysts like the potential Golden Dome project and increased NATO/European defense spendin