- Shares are being tested after consolidating at $490.
- Global defense budgets are at risk of cuts.
- This month’s earnings report will tell investors a lot.
The Lockheed Martin (NYSE:LMT) ended 2022 with a bang, reaching an all-time high of $498. And investors will be backing them to do more of this in the months ahead. Let’s see what some of the drivers from recent weeks might be for this.
For those that don’t know, Lockheed is a defense and aerospace company that counts governments as its main customer base. The company’s stock has done well in recent years, up 90% since 2019, making it an attractive investment for those looking for something reliable.
With tech continuing to underperform, defense stocks have become a haven, giving contractors like Lockheed Martin the upper hand going into 2023.
Bullish Tailwinds
The good news first. Lockheed recently bagged several major Navy contracts, including F-35 fighter aircraft, which have gone a long way to boosting their end-of-year numbers and giving them a hot start to 2023.
These are long-term contracts expected to last until the end of the decade and will help ensure Lockheed’s place at the forefront of the global military aircraft market, which is expected to have a 4% CAGR in the same timeframe.
With numbers like these, investors getting into defense stocks like Lockheed and peers such as Northrop Grumman (NYSE:NOC) have decent tailwinds backing up any position.
Of these two more well-known names in the space, Lockheed is showing the strongest start to the year, with their shares down just 4% compared to Northrop’s -8% drop.
Perhaps to avoid the same tarbrush that has dented the attractiveness of oil and gas stocks to funds in recent years.
Management has set several ambitious sustainability goals, including reducing its greenhouse gas emissions by 50% by 2030 and using 100% renewable energy at its facilities by 2030.
Eye-catching for sure, but achievable? We’ll have to wait and see. In the meantime, investors will be watching closely for the company’s latest earnings report, due out by the end of the month.
As reported on Marketbeat last week, analysts from Jefferies expect the company to post higher-than-expected EPS numbers, which could be the driver needed to spark a new rally.
Shares are trading along a line of support right now at the $460 mark, and we kind of need to hold this in the coming sessions to stave off any concerns that they’ll break down further.
Having consolidated just under $490 for much of the past four months, this is the first proper test the bulls have had to contend with since the summer.
The Bigger Picture
With that in mind, it’s important to recognize that headwinds exist. This defense stock relies heavily on government projects worldwide to feed its revenue and growth. With a shaky economy entering 2023, there’s a chance that defense budgets will be on the firing line.
To that end, White House representative Kevin McCarthy rattled the defense industry with a recent speech that revealed plans to slash defense spending by about $75 billion. It remains to be seen if this will even get close to approval, but it’s still indicative of the primary risk to a business like Lockheed.
Investors should now watch the tape to see if the $460 holds. If shares can consolidate along here, they’ll be well set to trend up into the coming earnings report, where an upside surprise, as anticipated, could be just the spark they need to set a fresh all-time high.
To the downside, any continued weakness will likely see them trend below $400.