Lockheed Martin (LMT) Upgraded to Overweight as F-35 Deal Cuts Risk

Lockheed Martin (LMT) got a big vote of confidence from Wall Street on Monday. Morgan Stanley analyst Kristine Liwag upgraded the stock to Overweight from Equal-weight and lifted her price target to $835 from $690.

The trigger was a deal announced four days earlier. As Investing.com reported, Liwag told clients the new F-35 agreement significantly de-risks the stock. Shares rose roughly 3% to 4% on the day.

Here's the deal itself. The Pentagon and Lockheed agreed to a 10-year framework that the Defense Department says guarantees at least 850 F-35 fighters for the U.S. military, according to Defense News.

It also covers spare parts, modification kits, sustainment and foreign orders. Production holds at 156 jets a year.

In return, Lockheed will self-fund at least $7 billion of initiatives supporting the program. That's the company's side of the bargain for a decade of visibility.

Liwag's argument, as the Motley Fool summarized it, is that the contract reduces downside risk and gives Lockheed's supply chain a clear runway. She also expects missile production to lift revenue at a mid-teens rate for the next five years.

The math behind the upgrade is simple. Before this call, the F-35 was a big revenue stream that could shrink with any budget fight. A multiyear framework turns that into something closer to a floor.

"Predictable demand from long-term contracts with suppliers will enable bulk procurement of raw materials and critical parts, slashing turnaround times and reducing logistics bottlenecks." — Lockheed Martin statement on the F-35 framework agreement

For investors, the stock-level picture matters. Lockheed has traded between roughly $437 and $692 over the past year, and an $835 target would put it well above that old high. The yield sits around 2%, and the Motley Fool noted the shares trade at under 17 times free cash flow.

The aeronautics unit, which builds the F-35, is Lockheed's biggest business at about $30.6 billion in annual revenue. It's also one of the lower-margin ones, with operating margins below 7% last year, versus about 13% for missiles.

That's the counterpoint Wall Street isn't ignoring. Bank of America's Ronald Epstein stayed at Neutral with a $620 target and worries that higher F-35 volume at bulk pricing could squeeze margins. JPMorgan also stayed at Neutral, though it lifted its target to $665.

There's a bigger caveat too: the framework isn't a contract yet. Defense News reports it needs congressional approval and funding.

The current stopgap spending law, which runs through Dec. 11, generally bars multiyear buys.

The defense policy bill that would authorize those buys has also slipped. Senate leaders have pushed it until after the November midterms. Congress funded only 47 F-35s this fiscal year, while the Pentagon's next request calls for 85.

Readiness is another quiet issue. A June Government Accountability Office report found the F-35 mission-capable rate fell from 67% in fiscal 2021 to 44% in fiscal 2025. Lockheed says steadier orders should help fix that, but that's still a promise, not a result.

So what do you do with this? The upgrade makes the most sense for investors who want defense exposure backed by long-dated demand rather than a one-quarter story. The case rests on missiles and F-35 stability, not on a surprise earnings beat.

Pay attention to price. After Monday's move, the stock sits much closer to the top of its yearly range.

Waiting for a pullback toward the low $600s, or for a clear congressional signal, is a reasonable way to avoid paying up for news everyone already knows.

Watch three things next: the defense policy bill's timing, how Lockheed describes F-35 margins on its next earnings call, and any detail on the performance-based incentives that neither side has spelled out.

Bottom line: the F-35 deal gives Lockheed a decade of visibility, but Congress still has to sign off before the story fully pays.