Al Root

Lockheed Martin stock was down early Thursday after catching a downgrade, but now all that much, suggesting that the damage from the company's loss to Boeing on the Air Force's F-47 program looks done. Unfortunately, it has another, perhaps larger issue.

On Wednesday, RBC analyst Ken Herbert cut his Lockheed stock rating to Hold from Buy, while his price target went to $480 from $550 a share.

The loss of the contract for the next-gen F-47, which instead went to Boeing, is part of the reason for the downgrade. "The recent [Next Generation Air Dominance, or NGAD] loss has raised fresh questions on the long-term growth outlook," Herbert writes.

Coming into Thursday trading, Lockheed stock was down 5% since the decision on March 21. The dip is one reason Lockheed shares weren't reacting too much to the downgrade. Shares were down 0.8% at $441.55 premarket trading Thursday, while S&P 500 futures were down 0.2% and Dow Jones Industrial Average futures were up little changed.

Lockheed, however, has another problem: The F-35 program. The F-35 has faced attacks on multiple fronts, and those attacks could start ratcheting up. "The F-35 is acutely exposed to headline risk as President Trump and Elon Musk, head of the DOGE, continue to highlight the high price tag of the program, while international customers are increasingly focusing on their own military industrial base," wrote Herbert.

The risks are many. Musk has been critical of manned fighter jets, believing that drone technology is better for the military. The jet program is also expensive. Total lifetime costs are estimated at $2 trillion. That stretches over multiple decades and is for plane procurement and operation. The F-35 is partly that expensive because it has been so successful with thousands of planes ordered by multiple branches of the military. But that might not keep Musk and Doge at bay. Even at about 16 times estimated 2025 earnings, an attractive valuation, Herbert doesn't see any catalysts to drive shares higher soon.

Lockheed's loss is Northrop Grumman's gain. Its shares were up 1.3% at $ 513.71 after Herbert upgraded its stock to Buy from Hold, while his price target went to $575 from $500 a share.

"The positive shift in Northrop sentiment has significant room to run as the company is well positioned relative to shifting DoD priorities, execution on the B-21 [stealth bomber] remains strong, which could support an improved funding outlook," wrote the analyst. "Further, we see the DoD as likely to diversify its F/A-XX aircraft program after recently awarding NGAD to Boeing."

The F/A-XX is the Navy's next-gen plane program, yet to be awarded to a contractor. A decision could come as early as this week. Wall Street believes Boeing and Northrop are the leading bidders. Herbert believes Northrop is the likely winner, as the Defense Department will want multiple contractors building modern jets.

At least that's what it used to want. Time will tell if Trump and Musk want the same thing.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 27, 2025 08:01 ET (12:01 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.