Lockheed Downgraded: Truist Flags Stormy Skies For Defense Giant After Q2 Shock

Lockheed Martin (LMT) stock was downgraded by Truist Securities to ‘Hold’ from ‘Buy’ after the company’s second-quarter earnings estimates plunged due to one-time charges totaling $1.8 billion.

According to TheFly, the brokerage also lowered the price target for the stock to $440 from $554, which still implies a 7.1% upside from the last close.

Lockheed stock fell 10.8% on Tuesday, its largest single-day drop since late 2021, as the company encountered design, integration, and testing challenges, resulting in one-time charges. The company incurred $950 million in charges for classified programs within its aeronautics segment, while two charges for helicopter programs totaled $665 million.

Retail sentiment on Stocktwits was still in the ‘extremely bullish’ territory, while retail message volume surged 1900% compared to a day earlier.

Truist analysts noted that the charges were far larger and broader in scope than expected. The brokerage added that, while this may be a "kitchen sink" type of quarter due to the recent CFO change, further charges related to existing programs could still materialize in coming periods.

The brokerage also stated that these charges will likely put pressure on future cash flow and profit margins, making it more challenging for the company to achieve the higher end of its long-term growth goals.

Separately, Vertical Research Partners analyst Rob Stallard reportedly said, “No assurance that the pain is over.” He added, “While Lockheed management detailed a number of reasons why these charges had been taken in 2Q, they gave little assurance that the related risk is now behind us…Lockheed is unable to say how long the [classified] program still has to run due to its secretive nature.”

While defense spending worldwide is expected to rise amid growing geopolitical tensions, major aerospace firms are facing challenges related to a shift in wartime strategies, including the emphasis on drones over expensive fighter jets, such as Lockheed’s F-35.

However, the company assured on Tuesday that it has a line of sight to increase its backlog in 2025, with a handful of significant awards expected in the second half of the year, including those for the F-35 stealth fighters and missile systems.

One Stocktwits user wondered if the company would benefit from acquiring one of the (public or private) drone companies.

Lockheed Martin stock has fallen 15.5% this year.

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