Goldman Sachs sees potential pressure on Lockheed Martin shares as the US attempts to rein in spending. Analyst Noah Poponak said defense stocks are currently pricing in a global geopolitical battle between the world’s largest countries, but they could take a hit if the US refocuses on its cumulative debt. Defense stocks could suffer if defense budgets, valuations or their earnings fall from the near-historic highs they are currently nearing, he said. Poponak downgraded Lockheed Martin to sell from neutral, nothing that makes the company, with 75% exposure, particularly vulnerable to changes in government budgets. He also lowered his price target by $56 to $332, down 28% from the stock’s close on Thursday. “The defense budget has grown significantly to an all-time high, and given the high cumulative US government debt, the focus could return to slowing spending growth or reducing it entirely in 2023,” Poponak said in a note to clients. “LMT is highly diversified across the defense end market, meaning it often grows at rates similar to budget.” The stock fell nearly 3% in premarket trading. Aside from budget changes, Poponak expects financial losses from the halted delivery of its F-35 jets due to an incident in December, which is still under investigation. He said the company should also see uneven growth with other offerings like its Blackhawk aircraft and overhead persistent infrared (OPIR) satellites. Inflation will also limit organic growth in the coming years, he said, leading to a rebound in the mid-2020s, right where Lockheed Martin fared in 2021. Poponak expects little to no cash flow growth over the next several years. Goldman Sachs is relatively less bullish on Lockheed Martin relative to its peers, as the company expects a 3% average upside potential for defense and space stocks and a 29% average upside potential for aerospace stocks. But Poponak also downgraded Northrop Grumman to sell from neutral and Raytheon to neutral from buy. – CNBC’s Michael Bloom contributed to this report.
https://www.cnbc.com/2023/01/13/goldman-sachs-downgrades-lockheed-martin-says-shares-could-fall-28percent-if-government-reduces-defense-spending.html Goldman Sachs downgrades Lockheed Martin and says shares could fall 28% if the government cuts defense spending
