What happened
Shares of Lockheed Martin (LMT -0.75%) traded up more than 5% on Wednesday after the defense titan's CEO expressed confidence that pandemic-related disruptions to production lines would be short-lived, and that the Pentagon budget will remain robust for years to come.
So what
Lockheed Martin and other defense contractors have been relative safe havens during the COVID-19 pandemic, but the company has seen some supply chain and manufacturing disruptions on key products, including its F-35 Joint Strike Fighter.
CEO Marillyn Hewson, speaking Thursday at a Bernstein conference, said that Lockheed Martin will deliver 18 to 24 fewer F-35s than planned this year due to the pandemic. But she is confident production will return to pre-pandemic levels by year's end and said the company will increase output from the 140 planned in 2020 to 170 aircraft per year by 2022.
A Lockheed Martin F-35. Image source: Lockheed Martin.
Hewson also addressed concerns that unplanned U.S. spending to battle the pandemic could crimp Pentagon budgets for years to come. She said she is optimistic about bipartisan support for the fiscal 2021 defense budget, and that she believes lawmakers understand the importance of defense spending.
"I think our members of Congress are going to stay focused on national defense spending because it is so important," Hewson said. She noted that defense officials have prioritized research and modernization in recent budgets, saying it has had a positive impact on Lockheed Martin "because we have been very successful in winning some new business in that arena recently."
Now what
Lockheed Martin has been a top performer among aerospace stocks in recent years for the exact reason Hewson mentioned: Its portfolio is well positioned to address some of the Pentagon's most pressing needs.
The F-35 is a potential trillion-dollar program that is going to provide a predictable revenue stream for the rest of the decade, and its antimissile and defense systems are a primary deterrent to North Korea and other threats. We are likely near the top of the cycle when it comes to defense spending, but even if the budget does not expand in years to come, there will be plenty of money to go around. And Lockheed will soak up a good share of it.
Lockheed Martin remains a good destination for investors who want exposure to the defense sector.
