Wall Street is reacting to last week's news that Lockheed Martin (LMT +0.94%) has lost the battle to produce the Air Force's next-generation fighter. The commentary is putting new pressure on Lockheed Martin shares, sending the stock down about 3% as of 10:30 a.m. ET.
An unexpected loss
Lockheed is the world's largest pure-play defense contractor, and for decades has been the undisputed leader in fighter technologies. The company won the last two major Pentagon fighter competitions, producing what is now called the F-22 Raptor and the F-35 Joint Strike Fighter.
But that streak ended on Friday, when the Air Force selected Boeing to produce its sixth-generation fighter. Boeing won an initial $19 billion contract to fund continued research and development of the plane, which could produce upward of $250 billion in revenue for Boeing and its subcontractors in the decades to come.
With Northrop Grumman favored to beat out Lockheed Martin in a separate U.S. Navy fighter competition, Lockheed could soon be left with only the F-35 in production. (The new plane Boeing will develop will replace the F-22.)
Lockheed Martin was considered by many market watchers to be the favorite to win at least one of those deals. On Monday, the stock was downgraded to hold from buy at several investment banks.
NYSE: LMT
Key Data Points
Is Lockheed Martin a buy?
Lockheed is still likely to get F-35 revenue for decades, and the company has plenty of other helicopter, missile, and electronics programs to keep sales coming in. But the loss eliminates the most obvious near-term catalyst to get the stock moving higher and could leave the shares range-bound for some time.
This is still an impressive franchise, and the talk of a new U.S. missile defense system could over time be nearly as lucrative to Lockheed Martin as the new fighter would have been. But the defense system is just talk for now, and we are unlikely to see anything concrete in the quarters to come.
For those willing to wait out the lull, Lockheed does offer a dividend yielding 3% after its fall. But there is no reason for investors to rush in to take advantage of this decline.
