CS Upgrades Lockheed Martin and Predicts Faster Earnings Growth

Credit Suisse says Lockheed Martin's earnings should surprise the upside this year due to a better defense sector outlook. 

In a report released by analyst Scott Deuschle, the company was upgraded from underperforming to outperforming. According to Deuschle, the stock's closing price on Monday could rise 11% from Deuschle's $510 target price.

With book: a bill to be greater than 1.0x for the third consecutive quarter, LMT's book: bill accelerated to 1.08x in Q3 and to 1.22x in Q4. The acceleration of our rating should be viewed as a powerful signal that we no longer believe the rationale for our previous rating," Deuschle wrote in a note to clients on Monday.  

"In fact, we have found that revenue usually increases based on booking increases, so we are increasingly confident LMT will return to growth this year." According to the analyst, "we see this as an opportunity to gain a meaningful premium on our estimates." 

The upgrade resulted in a 1.51% gain for Lockheed Martin in premarket trading. Over the past 12 months, shares have gained almost 20%. 

Among Lockheed Martin's combat aircraft models, is the F-35, which is one of Deuschle's headwinds this year. The possibility of a reduction in defense department budgets could also stifle growth if THAAD volumes are lower than expected. 

The company's backlog and the possibility of supply chain improvements could nonetheless lead to more bullish growth than it had indicated in its latest guidance.

In comparison to past earnings data patterns, Deuschle expects revenue growth in 2023 to be propelled by an 11% increase in backlog in 2022.