Why Lockheed Martin Stock Dropped Today
Key Points
Midterm election results last night put Democrats in control of both the U.S. Senate and House of Representatives.
The Pentagon prepares to see a record $1.5 trillion defense budget request reduced to $1.1 trillion.
Lockheed Martin stock could still be a bargain even without massive defense spending.
- Motley Fool Issues Rare "Total Conviction" Buy Alert ›
The Midterm Elections 2026 are over, and the Democrats won in a landslide. So what does this mean for Lockheed Martin (NYSE:LMT) stock? Apparently, nothing good.
Shares of the major military contractor fell 5% through 10:35 a.m. ET Wednesday morning on no bad Lockheed Martin-specific news at all. No analysts have downgraded the stock (yet). No one's cut any price targets (also yet). But the stock's still down.
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In fact, one analyst defied sentiment and upgraded Lockheed stock today!
Image source: The Motley Fool.
Bad news for defense budgets
President Donald Trump had pushed a $1.5 trillion fiscal year 2027 defense budget in the months leading up to November's election. It's unlikely, however, that a Democratic Congress will approve anything like that.
At last report, the U.S. Senate is looking to number 54 Democrat votes to just 44 Republicans, with the House of Representatives tilting blue 228-139 (with 68 seats not yet confirmed). And even before the results are all in, Politico reports the Pentagon plans to reduce its spending request from $1.5 trillion to $1.1 trillion.
What's next for Lockheed Martin stock
Despite all this, Guggenheim analyst Michael Ciarmoli chose today to initiate coverage of Lockheed Martin stock with a buy rating and a $735 price target, as StreetInsider.com reports. Why?
Priced north of 22 times earnings and with an historically pricey 1.9x price-to-sales ratio, Lockheed doesn't look like a particularly cheap stock, especially if it can no longer count on a massive increase in defense spending to help it. Lockheed's free cash flow, however, looks very healthy at $8.4 billion; for every $1 in "earnings" Lockheed reports, it actually generates $1.29 in real cash profit.
Valued at 17.6x FCF and pegged for nearly 18% annual earnings growth on Wall Street, Lockheed stock still looks like a buy to me.
Should you buy stock in Lockheed Martin right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lockheed Martin. The Motley Fool has a disclosure policy.
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