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Wells Fargo downgrades Lockheed Martin despite the Ukraine war

on Sep 28, 2022
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  • Wells Fargo downgrades Lockheed Martin to "underweight".
  • Analyst Matthew Akers says 2023 will be a tough year for LMT.
  • Lockheed shares are currently up 13% versus the start of 2022.

Lockheed Martin Corporation (NYSE: LMT) is up 13% versus the start of 2022 but a Wells Fargo analyst says it’s pretty much as far as it goes.

Lockheed Martin is fairly priced

On Wednesday, Matthew Akers downgraded the defense company to “underweight” and announced a price objective of $415 that does not represent a meaningful upside from here.

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He warned of a difficult environment for this stock next year if the geopolitical tensions ease and the government spending slows down. The analyst does not see Lockheed Martin as a great pick for the coming recession either.

Defense stocks as a hedge for market downturns [don’t have a good] track record. During 10%+ market corrections in past 20 years, defense has modestly outperformed on average (~4%), although underperformed over 50% of the time.

The current price-to-earnings multiple on “LMT” is well above its previous five-year average.  

Lockheed Martin missed estimates in fiscal Q2

Even with the war in Ukraine, Lockheed Martin came in shy of the Street estimates in its latest reported quarter. Akers added:

We see a portfolio likely to under-grow peers, particularly if it doesn’t win the Future Vertical Lift FLRAA contract where it is incumbent on Black Hawk (expected in October).

Wells Fargo also downgraded peer L3Harris Technologies Inc (NYSE: LHX) to “equal-weight” on Wednesday. Its price target of $238, however, still translates to about a 10% upside from here.

The defense stock is currently trading at the same price at which it started the year 2022.