Global military conflicts are prompting some nations to take preventive measures, boosting defense spending today to potentially ward off aggression.
Greece is among the countries taking pre-emptive steps. Earlier this week, a parliamentary committee there approved a spending package of up to $36 billion over a decade to bolster its air defense system, including the “Achilles Shield,” which is akin to Israel’s “Iron Dome.” The objective is to be prepared if the relationship with neighboring Turkey, which is described by some as “unneighborly” and tense, turns sour.
Greece’s plans to boost air defense spending is interesting for Lockheed investors, but it won’t jolt the stock over the near-term. Image source: Getty Images.
Some investors may be pondering if Greece’s pledge to increase air defense spending will help already high-flying shares of Lockheed Martin (LMT 0.94%) gain more altitude, but the devil is in the details.
Greek spending helps, but it’s not a near-term jolt
Over the five days ending March 18, a period that included Greek news, shares of Lockheed dipped 2.52%. Sure, some of that has to do with weakness in the broader market, and that dip might be a case of some profit-taking in a stock that’s up nearly 33% year to date. It may also be a result of markets saying Greece’s upped spending pledge isn’t going to be a near-term tailwind to Lockheed’s earnings per share.
Sure, that may be disappointing to investors who know the history between this company and Greece, which spans 75 years and includes famed aircraft such as the F-16 and F-35, among others, but context matters. Lockheed Martin is a $146.41 billion company. Hence, a contract worth $36 billion spanning a decade isn’t a game changer in the near term, even though it’s additive to the longer-term investment thesis.
Additional context can ease some of the aforementioned disappointment because even if Greece spends the full $36 billion through 2035, not all of that capital will go to Lockheed. At least $3.5 billion is being directed to a pair of Israeli companies.
Today’s Change
(-0.94%) $-6.02
Current Price
$636.26
Key Data Points
Market Cap
$148B
Day’s Range
$624.02 – $639.79
52wk Range
$410.11 – $692.00
Volume
83K
Avg Vol
1.8M
Gross Margin
10.15%
Dividend Yield
2.10%
For Lockheed investors who are keeping score at home, Greece’s expenditures include upgrading 38 F-16s and purchasing 20 new F-35s. Those shareholders may also find some comfort in knowing the company delivered a record number of those jets last year and cleared its backlog, so it may be able to get the new F-35s to Greece at a pace that satisfies both client and shareholders.
More reasons to consider Lockheed stock
Alone, the Achilles Shield spending isn’t a reason to buy Lockheed, but it is another example of global defense budgets heading higher, and that is a catalyst for defense equities.
For long-term investors, there are other reasons to like this stock, including the industrial sector’s status as a front-and-center player in the hard-asset, low-obsolescence (HALO) trade. Translation: Lockheed and its ilk are unlikely to be disrupted by artificial intelligence (AI).
Looking for more near-term satisfaction? Industrial sector earnings are expected to grow 11.6% this year, with more than half the groups in the sector forecast to grow at double-digit rates. Those are trends that could benefit Lockheed.