Lockheed Martin can return to growth this year – Credit Suisse

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Credit Suisse analysts double-upgraded Lockheed Martin (NYSE:LMT) to Outperform from Underperform and lifted the firm’s price target on the stock to $510 from $427 in a note to clients on Tuesday.

The analysts explained that the firm’s motive for the upgrade focuses on its updated sector outlook, improved confidence in LMT’s growth inflection, and the fact they estimate an upside opportunity.

In addition, Credit Suisse also has an out-year alignment in its EBIT growth forecasts between LMT and NOC, which they believe argues for a relative multiple rerating.

“Weak book-bill was a primary driver of our prior Underperform rating on LMT, as we believed that this softness would limit LMT’s ability to accelerate its relative growth,” explained analysts. “However, LMT has now reported three consecutive quarters with book-bill >1.0x, with TTM book:bill accelerating to1.08x in Q3 and hitting 1.22x in Q4. We view this acceleration as a powerful signal that the rationale for our prior rating no longer holds.”

Credit Suisse is confident Lockheed Martin can return to growth this year as in its experience with defense, “revenue nearly always accelerates off an acceleration in bookings,” and as a result, the firm feels this could “offer meaningful estimate upside opportunity.”

“Based on our updated modeling, we project LMT can deliver 5.9% EBIT growth in 2025E, in-line with NOC. This alignment is driven both by higher EBIT growth estimates at LMT, as well as diminished EBIT growth projections for NOC,” continued analysts. “We believe this alignment in trajectories argues for LMT to rerate relative to NOC.”