When Lockheed Martin
Pessimists probably argue that the company's prediction of "flattish" revenues in 2012, plus constant profit margins of 11%, mean there's little chance earnings will grow for the next year -- and that this explains the stock's decline. Pessimistic pessimists worry further that the rising cost and delays in production of Lockheed's new F-35 fighter jet will crimp profits -- and could even end in the cancellation of the plane (a suggestion I believe is pure bunk).
The truth is even stranger than that fiction. Turns out, if the F-35 is delayed past its 2016 target date, it will be good for Lockheed.
You see, whether the F-35's operational by 2016 or not, America still needs fighter jets. And in preparation for a potential delay, the Pentagon is already making plans to upgrade its existing fleet of F-16s to extend their operational lives by nearly a decade. Present plans call for at least 300 F-16s to receive avionics and airframe upgrades, at an estimated cost of $2.8 billion. Potentially, the Air Force could need up to as many as 600 planes (i.e., $5.6 billion for Lockheed) if the F-35 is delayed longer than expected.
So you see, whichever way you bet -- heads or tailfins -- Lockheed really can't lose.
And not just Lockheed
Turns out, delays in weapons programs benefit all sorts of defense companies. The Navy is planning to upgrade perhaps 150 of Boeing's
And the Air Force's vaunted UAV program -- you know, the flying drones that are supposed to make manned fighter jets obsolete? -- is having trouble getting enough drone-certified "pilots" to operate its plane. It's even had to raid its teaching staff to plug the gap, slowing the production of drone pilots even more.
The solution? You guessed it: They're putting more F-16s in service ... and giving more money to Lockheed.
Will Lockheed's continued success eventually convert the skeptics? Will the stock bounce back from its post-earnings sell-off? Add Lockheed Martin to your Watchlist, and we'll keep you updated on all the most important developments.