Lockheed Martin Shares Poised for Takeoff
Lockheed Martin (LMT) - Get Report rose on weak volume Friday after the company said that it is in the final stages of negotiations with the Pentagon to close on a multi-billion-dollar contract for the next batch of F-35 Joint Strike Fighter stealth jets.
The Action Alerts PLUS holding has had some well-publicized setbacks with the next-generation aircraft as the Pentagon has also received criticism for the project's ballooning costs. Now that it is in the final stages of negotiations, Lockheed Martin's stock could get a boost, according to AAP co-managers Jim Cramer and Jack Mohr.
"From a secular level, Lockheed sits in an industry benefiting from serious secular growth (increases in defense spending)," Cramer and Mohr said. "As we've noted time and again, stability and income generation will win out in this uncertain market and LMT fits the bill. We reiterate our $245 price target and would consider further trimming into incremental strength above $250."
Lockheed Martin closed Friday at $251.90, up less than 1%.
Additionally, the company also sees the possibility of selling the fighter in other markets like Switzerland, according to statements made by executive vice president Jeff Babione ahead of the Farnborough International Airshow in Hampshire, England.
"The Swiss (fighter replacement program) will be a great opportunity to offer the F-35 -- absolutely it would. It would do well in any open and transparent competition," Babione said.
Despite these tailwinds, the Action Alerts team recently trimmed its position in Lockheed because the stock has surpassed their price target expectations.
"We trimmed Lockheed Martin as the name crossed our price target and has rallied significantly over the last couple of months," Cramer and Mohr said in a recent note. "We do not want to be greedy in this uncertain market, especially since 2016 is expected to be a messy year, and would look to add back to the name on a material pullback."
AAP's long-term bullishness is counter-balanced by the recent run up in the company's price. Year to date the stock has risen 16%, and over the past 12 months it has risen 30%.
"We appreciate the company's powerful capital return program, marked by a 2.6% dividend yield and massive buyback program and backed by robust free cash flow generation and a rock-solid balance sheet," Cramer and Mohr concluded.
This article was first published on Real Money at 5:14 p.m. on July 8.