Lockheed Martin (LMT 0.48%) stock initially fell more than 4% in Tuesday morning trading before paring its losses in the afternoon. As of 8 2:35 p.m. ET, Lockheed stock is still down -- but now only 0.8%.
But why did Lockheed Martin fall at all?
Image source: Getty Images.
Lockheed's big price rollback
The most obvious catalyst for Lockheed Martin's morning sell-off was Lockheed's announcement yesterday of a new PAC-3 Adapted Capability Effector (PAC-3 ACE) Patriot missile that will either replace or supplement Lockheed's existing product, the PAC-3 MSE (for "Missile Segment Enhancement").
That sounds like good news -- more missiles for Lockheed to sell, especially if the ACE supplements existing sales of MSE Patriots. But here's the thing:
Lockheed is marketing ACE as a "low-cost" interceptor missile. But when Lockheed says "low-cost," investors seem to have heard ACE will be "low-profit," endangering the 13% operating profit margin at Lockheed Martin Missiles and Fire Control.
NYSE: LMT
Key Data Points
We'll make it up on volume
I think that's the wrong way to look at this news, however -- with Lockheed's stock price losses moderating as the day goes on, my hunch is other investors are coming to the same conclusion.
Why? Just because Lockheed advertises a product as "low-cost" doesn't mean the cost will be objectively low -- nor that profit margins will be low. PAC-3 MSE historically cost about $4 million per missile, although it's gotten more expensive due to increased demand in Ukraine and the Persian Gulf. ACE, at a reported $2.5 million price, may cost half as much as an MSE today -- but it's a much smaller discount relative to MSE's historical price.
Factor in lower input costs, plus more sales of cheaper ACEs, and I suspect Lockheed Martin stock is going to do just fine.
