Lockheed Martin's Stock Rise Reflects Missile and F-35 Catalysts, But Execution and Political Risks Endure

What happened

Lockheed Martin's stock has climbed 13.7% in a month, driven by a new PAC-3 MSE deal, record F-35 deliveries, a higher U.S. defense budget, and space awards that boost revenue visibility. However, the DeepValue master report highlights that this optimism masks significant execution risks, including F-35 sustainment underperformance with readiness rates near 50% and the potential for additional large program charges similar to the $1.6 billion hit in 2025. Political threats from the Trump administration to ban dividends and buybacks unless performance improves add a critical overhang to the capital-return-driven equity story. While missile and space backlogs support mid-single-digit revenue growth, the stock trades at a premium ~27x P/E, offering limited margin of safety against these headwinds. Consequently, the report maintains a 'WAIT' rating, advising investors to seek a more attractive entry point around $440 to mitigate risks.

Implication

The stock surge reflects positive catalysts in missile demand and F-35 deliveries, but investors must weigh these against the DeepValue report's identified risks, such as F-35 readiness issues and potential punitive contract changes that could erode Aeronautics profitability. Political intervention on dividends and buybacks threatens the capital return model, which is central to LMT's equity story, and could lead to multiple compression if enforced. At current valuations near $497, the stock aligns with the base-case intrinsic value of $500, but offers limited upside versus the bear case of $430 if risks materialize, making patience more attractive than new investments. Monitoring near-term catalysts like FY26 appropriations for missile defense and details on payout restrictions will be essential to assess whether the bullish narrative can overcome these overhangs. Therefore, a pullback toward the $440 attractive entry point or clear evidence of easing risks is needed to improve the risk-reward profile.

Thesis delta

The new article reinforces the bull case elements, particularly in missile and space segments, but does not alleviate core thesis risks related to F-35 performance and political payout threats. Thus, the investment thesis remains unchanged: a 'WAIT' rating with an attractive entry at $440, as the stock's current level does not provide sufficient compensation for the identified execution and regulatory hazards.