Riddle me this: When is it bad for a stock to have "potential"?
Answer: When we thought it was already an actual bargain.
That's the situation Lockheed Martin
According to Pentagon acquisition chief Ashton Carter, F-35 orders are getting pushed back an unlucky 13 months to allow for extra testing of the plane. A decision on full-rate production of the F-35 won't begin until November 2015 at the earliest. Worse still, the additional testing will add $2.8 billion to the F-35's development cost, and means the Pentagon will withhold $614 million in performance bonuses for the company and partners Northrop Grumman
Bad news, worse news
All of which sounds bad, but could still get worse. By upping the program's cost, and pushing back deliveries, there will be less time for Lockheed to sell planes, potentially fewer planes built, and importantly, fewer planes among which to spread higher development costs -- meaning each individual plane becomes pricier. In the best case, this will make it easier for Boeing's
Will it ultimately come to that?
I doubt it -- for the simple reason that, now that Congress has killed the F-22 Raptor program, the F-35 is the most modern fighter option we've got left. In demonstration of which, its grumbles notwithstanding, the Pentagon is requesting "long-lead" funding for 48 F-35s in 2011. What's more, according to the Air Force, the real objective of this report is to: "hold the contractor's feet to the fire [and] ... incentivize them to make good on the promises that they had made earlier and to deliver on schedule."
Still, the Pentagon is clearly getting upset with Lockheed's performance on this project -- and it's never a good idea to upset your customer. For Lockheed the stock to deliver on its potential, Lockheed the plane maker has to deliver its F-35 -- on time and on budget (or as reasonable a facsimile thereof as possible).
The longer it takes 'em to fix that which ails 'em, the more "potential" this stock will have. And that's not a good thing.
Lockheed's stock has lagged the market badly over the past year. How do you tell a bargain stock from a value trap? Find out here.