DOGE Fears For Defense Contractors Lockheed Martin, Northrop Grumman 'Overblown,' Analyst Says

Elon Musk's Department of Government Efficiency (DOGE) has sparked concerns about the future of U.S. defense contractors, but Truist analyst Michael Ciarmoli believes that fears for Lockheed Martin and Northrop Grumman are overblown. In a research note, Ciarmoli initiated coverage of Northrop Grumman Corp. (NOC) and Lockheed Martin Corp (LMT) with buy ratings, setting price targets of $544 and $579, respectively. He argued that recent pullbacks in both companies' stocks have created compelling entry points, despite DOGE-related fears.

Ciarmoli highlighted several factors that make DOGE-related fears overblown for these defense contractors. First, DOGE is only an advisory board, and lawmakers and the appropriations committee still "call the shots" on budget and spending decisions. This means that DOGE's influence on defense spending is limited, and it cannot unilaterally cut budgets or impact defense contractors like Lockheed Martin and Northrop Grumman.

Second, Ciarmoli expects U.S. and NATO defense budgets to increase in 2026, which would benefit both Lockheed Martin and Northrop Grumman. This growth in defense spending contradicts the fears of budget cuts or flattening due to DOGE's influence.

Third, Northrop Grumman's anchor nuclear triad B-21 Raider and Sentinel GBSD programs are expected to provide stability and growth for the company. These programs are not likely to be targeted for cuts in the short term, as they are crucial for maintaining the U.S. nuclear deterrent.

Fourth, while the F-35 program may be targeted for cuts, Ciarmoli believes that this is unlikely to happen in the short term. Additionally, Lockheed Martin's growth framework is expected to prove conservative, with missile-related revenues pacing growth and free cash flow being revised higher.

Lastly, both Lockheed Martin and Northrop Grumman are expected to benefit from robust demand for missiles and munitions, further supporting their growth prospects despite DOGE-related fears.

In conclusion, Truist analyst Michael Ciarmoli's optimistic outlook on defense contractors like Lockheed Martin and Northrop Grumman is supported by geopolitical tensions and U.S. defense spending trends. The analyst's price targets and buy ratings for Northrop Grumman and Lockheed Martin reflect their perceived short-term stability and growth prospects, driven by specific programs and the overall defense spending trends. Despite potential concerns about the Department of Government Efficiency (DOGE) led by Elon Musk and Vivek Ramaswamy, the analyst believes that the recent pullbacks in defense contractors' stocks have created attractive entry points, and that U.S. and NATO defense spending will continue to grow.