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- LMT 3Q25 - "unprecedented demand" says CEO. Bull case $650 Bear case $420
LMT 3Q25 - "unprecedented demand" says CEO. Bull case $650 Bear case $420
Cheat Sheets
LOCKHEED MARTIN (LMT)
🚀 Record $179B Backlog | EPS $6.95 (Beat) | Revenue $18.6B (+9%, +5% Normalized) | 46 F-35s Q3 | FCF $3.3B (+60%)
$30B Multi-Year Awards Q3 | $9.8B PAC-3 (Largest Ever) | $9.5B JASSM/LRASM | $10.9B CH-53K | F-35 175-190 Deliveries FY25 | Dividend +5% (23rd Year)
💰 Market Cap: $118.1B | 🏢 121,000 Employees | 🌍 Global Defense Leader
👨💼 CEO Jim Taiclet | 🎯 4 Business Segments | 🇺🇸 Bethesda, MD
$493.16
📉 -$12.74 (-2.52%) Today
+20% YTD | -20% from 52-wk High
Price Targets (12-18 Months)
Current Price: $493.16
$650.00
Bull Case (+32%)
Global Rearmament
🚀 Needs:
F-35 production accelerates to 190+ annually (one aircraft/working day pace) • Backlog converts at 14%+ margins • PAC-3 and JASSM $19.3B multi-year ramp delivers • Golden Dome architecture awarded with LMT as prime • Space based interceptor demonstration by 2028 wins funding • Block IV and 6th gen F-35 enhancements accelerate • International orders surge
$560.00
Base Case (+14%)
Steady Execution
⚖️ Needs:
Mid-single digit revenue growth sustained • Segment margins expand 50-100bps • F-35 deliveries hit 175-190 for FY25 • $179B backlog converts steadily • $6.6B free cash flow for 2025 achieved • $1B annual pension contributions managed • Production rates stable on $30B multi-year awards
$420.00
Bear Case (-15%)
Program Charges
⚠️ Risk:
Additional major program charges emerge • Defense budget cuts materialize • F-35 production delays worsen • Fixed-price contracts deliver more losses • Supply chain issues persist • International orders slow • Tariffs squeeze margins • Government shutdown impacts funding
The TL;DR
💰 What Happened
• Q3 EPS: $6.95 BEAT (vs $6.35 est) - +2% YoY growth, strong execution across all four segments
• Revenue: $18.6B (+9% reported, +5% normalized for Lot 18-19 timing impact) - Aeronautics +12%, MFC +14%
• Cash Machine: $3.7B operating cash flow (+53% YoY), $3.3B free cash flow (+60% YoY), solid conversion
• Record Backlog: $179B (+2% YTD) - $30B in multi-year awards Q3 alone (PAC-3, JASSM/LRASM, CH-53K)
• F-35 Momentum: 46 jets Q3, 175-190 expected FY25 = "one aircraft every working day", over 1.2M flight hours program-wide
• Major Wins: $9.8B PAC-3 MSE (largest MFC contract ever, nearly 2,000 interceptors), $9.5B JASSM/LRASM, $10.9B CH-53K (up to 99 helos)
• 2025 Guidance RAISED: $74.25-74.75B sales (from $73.75-74.75B), $22.15-22.35 EPS (from $21.70-22.00), $6.6B FCF maintained
• Revenue: $18.6B (+9% reported, +5% normalized for Lot 18-19 timing impact) - Aeronautics +12%, MFC +14%
• Cash Machine: $3.7B operating cash flow (+53% YoY), $3.3B free cash flow (+60% YoY), solid conversion
• Record Backlog: $179B (+2% YTD) - $30B in multi-year awards Q3 alone (PAC-3, JASSM/LRASM, CH-53K)
• F-35 Momentum: 46 jets Q3, 175-190 expected FY25 = "one aircraft every working day", over 1.2M flight hours program-wide
• Major Wins: $9.8B PAC-3 MSE (largest MFC contract ever, nearly 2,000 interceptors), $9.5B JASSM/LRASM, $10.9B CH-53K (up to 99 helos)
• 2025 Guidance RAISED: $74.25-74.75B sales (from $73.75-74.75B), $22.15-22.35 EPS (from $21.70-22.00), $6.6B FCF maintained
✅ Bulls Are Right About
Unprecedented Demand: CEO: "In the deterrence business" - Record $179B backlog, $30B Q3 awards alone, "unprecedented demand cycle"
Production Scaling: F-35 "one aircraft every working day" pace, PAC-3 "nearly 2,000 interceptors", JASSM/LRASM "increased production quantities"
Cash Generation: $3.3B Q3 FCF (+60%), $6.6B full year target maintained, $1.8B Q3 returned to shareholders, 23rd year dividend increase
Production Scaling: F-35 "one aircraft every working day" pace, PAC-3 "nearly 2,000 interceptors", JASSM/LRASM "increased production quantities"
Cash Generation: $3.3B Q3 FCF (+60%), $6.6B full year target maintained, $1.8B Q3 returned to shareholders, 23rd year dividend increase
❌ Bears Are Right About
Q2 Trauma Fresh: $1.6B program charges Q2 still haunting, Aeronautics margins 6% YTD vs 10.1% prior year = massive compression
Execution Risk: Fixed-price programs risky, C-130 unfavorable adjustments Q3, CFO: "we're really managing program by program" carefully
Valuation Stretched: 28x P/E rich for defense, leaves no margin for error - any program charges = instant -8% like Q2 showed
Execution Risk: Fixed-price programs risky, C-130 unfavorable adjustments Q3, CFO: "we're really managing program by program" carefully
Valuation Stretched: 28x P/E rich for defense, leaves no margin for error - any program charges = instant -8% like Q2 showed
🎯 Bottom Line
Q3 was strong relief after Q2's $1.6B charges, but stock sold off -2.5% today on profit-taking. Demand is undeniable - CEO says "unprecedented demand cycle", $30B in Q3 awards alone, PAC-3 "largest contract in MFC history". F-35 hitting "one aircraft every working day" pace. But execution remains wildcard - Aeronautics margins still depressed YTD at 6%, CFO cautious on "managing program by program". Golden Dome opportunity massive but architecture undefined. At $493, stock now trades at more reasonable 27x P/E. If margins recover and $179B backlog converts cleanly, $560+ justified. If more charges emerge or Golden Dome disappoints, $420 downside real.
🐂 Bull Thesis
🌍
Global Rearmament Mega-Cycle
Record Backlog: $179B = 2.5+ years of sales per CEO, "unprecedented demand cycle", Space backlog at new high $38B
International F-35: Program total 3,500+ aircraft planned across U.S. and 19 international allies, over 1,200 delivered to date, 1M+ flight hours
Production Authority: Finalized F-35 Lots 18-19 early Q4 added $11B and 151 aircraft to backlog, removing major overhang
Golden Dome: CEO: "Well positioned with existing products, expertise and production capabilities", space-based interceptor demo by 2028 planned
International F-35: Program total 3,500+ aircraft planned across U.S. and 19 international allies, over 1,200 delivered to date, 1M+ flight hours
Production Authority: Finalized F-35 Lots 18-19 early Q4 added $11B and 151 aircraft to backlog, removing major overhang
Golden Dome: CEO: "Well positioned with existing products, expertise and production capabilities", space-based interceptor demo by 2028 planned
🚀
Production Ramping Everywhere
F-35 Acceleration: 46 deliveries Q3, 175-190 expected FY25 = "essentially one aircraft delivery every working day" per CEO
MFC Exploding: +14% Q3 sales, $9.8B PAC-3 contract (largest ever, nearly 2,000 interceptors), $9.5B JASSM/LRASM multi-year, "production rate visibility into next decade"
CH-53K Multi-Year: $10.9B contract for up to 99 helicopters = largest RMS contract ever, "ensures consistent deliveries into next decade"
Space Momentum: +9% Q3 sales, NGI advancing through development, FBM 70 years of success, multiple CRAD awards for revolutionary solutions
MFC Exploding: +14% Q3 sales, $9.8B PAC-3 contract (largest ever, nearly 2,000 interceptors), $9.5B JASSM/LRASM multi-year, "production rate visibility into next decade"
CH-53K Multi-Year: $10.9B contract for up to 99 helicopters = largest RMS contract ever, "ensures consistent deliveries into next decade"
Space Momentum: +9% Q3 sales, NGI advancing through development, FBM 70 years of success, multiple CRAD awards for revolutionary solutions
💸
Cash Flow Machine Restarted
Q3 Performance: $3.7B operating cash (+53% YoY), $3.3B free cash flow (+60% YoY), strong conversion driving inflection
Capital Returned: $1.8B Q3 to shareholders ($765M dividends + $1B buybacks), total $9.1B repurchase authorization after $2B added
Dividend Growth: 5% increase to $3.45/share quarterly = 23rd consecutive year of increases per CEO, demonstrates "confidence in stable performance"
F-35 Lots 18-19: Contract finalization drove working capital improvement, CFO targeting $6.6B FCF for full year 2025, pension contributions managed
Capital Returned: $1.8B Q3 to shareholders ($765M dividends + $1B buybacks), total $9.1B repurchase authorization after $2B added
Dividend Growth: 5% increase to $3.45/share quarterly = 23rd consecutive year of increases per CEO, demonstrates "confidence in stable performance"
F-35 Lots 18-19: Contract finalization drove working capital improvement, CFO targeting $6.6B FCF for full year 2025, pension contributions managed
🎯
Portfolio Strength & Innovation
F-35 Dominance: Largest weapon program in history, over 1,200 delivered, 1M+ flight hours, $15B sustainment contract through 2028 finalized
Technology Pipeline: CEO investing in Block IV enhancements + 6th gen capabilities from Skunk Works to F-35/F-22, "total best value approach"
All Segments Growing: Aeronautics +12% (+5% normalized), MFC +14%, RMS flat with $10.9B CH-53K won, Space +9% - portfolio firing
Margin Recovery: MFC 14.1%, Space 9.9% showing strength; Aeronautics rebounding from Q2 charges, 9.4% Q3 improving
Technology Pipeline: CEO investing in Block IV enhancements + 6th gen capabilities from Skunk Works to F-35/F-22, "total best value approach"
All Segments Growing: Aeronautics +12% (+5% normalized), MFC +14%, RMS flat with $10.9B CH-53K won, Space +9% - portfolio firing
Margin Recovery: MFC 14.1%, Space 9.9% showing strength; Aeronautics rebounding from Q2 charges, 9.4% Q3 improving
🐻 Bear Thesis
💣
Q2 Charges = Canary in Coal Mine
Recent History: $1.6B gross program charges Q2 2025, drove EPS to $1.46 (vs $6.39 prior year), stock dropped -8% immediately
Aeronautics Margins: 6.0% operating margin YTD vs 10.1% prior year = 410bps compression from program issues, still recovering
Ongoing Risks: Q3 had $40M unfavorable C-130 adjustments, CFO: "managing program by program", execution vigilance required
Fixed-Price Hell: Development programs on fixed-price = unlimited downside risk if scope/costs spiral beyond estimates
Aeronautics Margins: 6.0% operating margin YTD vs 10.1% prior year = 410bps compression from program issues, still recovering
Ongoing Risks: Q3 had $40M unfavorable C-130 adjustments, CFO: "managing program by program", execution vigilance required
Fixed-Price Hell: Development programs on fixed-price = unlimited downside risk if scope/costs spiral beyond estimates
⚙️
Supply Chain Remains Fragile
Persistent Issues: CEO: "supply chain improvements" ongoing but constraints remain, multi-year awards require "proactive partnership with suppliers"
Rare Earth Exposure: Complex supply chains for critical materials, geopolitical risks high, vendor performance critical to ramp
Vendor Performance: PAC-3 and JASSM multi-year awards require "more resilient industrial base" per management, not there yet
Production Constraints: Ramping to "one aircraft every working day" on F-35 requires flawless execution - any supply hiccup = delays/costs
Rare Earth Exposure: Complex supply chains for critical materials, geopolitical risks high, vendor performance critical to ramp
Vendor Performance: PAC-3 and JASSM multi-year awards require "more resilient industrial base" per management, not there yet
Production Constraints: Ramping to "one aircraft every working day" on F-35 requires flawless execution - any supply hiccup = delays/costs
🏛️
Government Risk is Underpriced
Budget Uncertainty: CEO monitoring "Congress work through FY26 appropriation bills and government shutdown" - funding delays/disruptions real
Golden Dome Undefined: CEO admitted "can't quantify" revenue opportunity until "mission technology roadmap" and budget allocated - could be years away
Tariff Impact: Current guidance assumes tariff recovery on contracts - CFO noted this assumption, if recovery fails = margin squeeze
Political Risk: Defense spending vulnerable to changing priorities, deficit hawks, changing administrations affecting long-term visibility
Golden Dome Undefined: CEO admitted "can't quantify" revenue opportunity until "mission technology roadmap" and budget allocated - could be years away
Tariff Impact: Current guidance assumes tariff recovery on contracts - CFO noted this assumption, if recovery fails = margin squeeze
Political Risk: Defense spending vulnerable to changing priorities, deficit hawks, changing administrations affecting long-term visibility
📊
Valuation Leaves No Room for Error
Multiple Stretched: 28x P/E vs historical 15-20x range = premium multiple demanding perfect execution
Peer Comparison: Trading at premium to NOC, RTX, GD despite recent program charges and margin pressure
Downside Risk: Any additional program charges = immediate 15-20% stock drop like Q2 demonstrated
Margin of Safety: Stock already up 23% YTD, priced for best-case scenario, no cushion for disappointment
Peer Comparison: Trading at premium to NOC, RTX, GD despite recent program charges and margin pressure
Downside Risk: Any additional program charges = immediate 15-20% stock drop like Q2 demonstrated
Margin of Safety: Stock already up 23% YTD, priced for best-case scenario, no cushion for disappointment
This analysis is for informational purposes only and should not be considered investment advice. Please consult with a financial advisor before making investment decisions.
