Lockheed Martin's New Challenges: Can the Defense Giant Overcome Classified Program Setbacks?

Lockheed Martin, the world’s largest defense contractor, has long been a stalwart of the U.S. military industrial complex. Yet investors heading into early 2025 face fresh concerns about the company’s ability to navigate a perfect storm of program overruns, leadership turnover, and intensifying competition. With its Q1 2025 earnings report looming and a $27.15 EPS forecast for fiscal 2025—a 4.6% drop from 2024—the question is whether Lockheed can stabilize its trajectory before further setbacks erode investor confidence.

The Financial Crossroads

Lockheed’s financial health hinges on resolving its struggles with classified programs, which have become a recurring drag. In Q4 2024, these programs alone contributed to a $2.0 billion loss, slicing into free cash flow and pushing GAAP EPS to a paltry $2.22. Analysts now project a $27.00–27.30 EPS for 2025, a stark contrast to the 9.1% rebound expected in 2026. The company’s $176 billion backlog—a record high—offers long-term stability, but near-term execution remains precarious.

Program Setbacks and Competitive Pressures

The loss of the $20 billion F-47 fighter jet contract to Boeing in March 2025 was a body blow. The 5.8% stock plunge that followed underscored investor sensitivity to competition. Meanwhile, Lockheed’s F-35 program, its crown jewel, continues to grapple with production delays and cost overruns. Adding to the woes, SpaceX has surged ahead in the missile defense arena, leveraging its disruptive pricing and agility to challenge Lockheed’s traditional dominance.

Leadership and Transparency Concerns

The abrupt departure of CFO Jay Malave in late March—replaced by veteran Evan Scott—sparked a 6% intraday sell-off, though shares stabilized with a 2% loss by day’s end. While Lockheed insists the exit was unrelated to accounting issues, the timing just days before Q1 earnings raised questions about financial transparency. With classified programs accounting for an increasing share of its portfolio, investors crave clarity on how these opaque contracts will be managed.

Regulatory Scrutiny and the DOGE Factor

The newly formed Department of Government Efficiency (DOGE) has sharpened its focus on defense contractor cost discipline. This adds pressure to Lockheed’s profit margins, as fixed-price contracts—common in classified work—leave little room for error. The company’s Q4 classified losses, driven by cost-reimbursable contract write-downs, highlight the risks of these agreements.

Analysts Split on Near-Term Risks

Analyst sentiment is a mixed bag. A “Moderate Buy” consensus masks divergent views: 9 analysts recommend a “Strong Buy,” citing Lockheed’s $176 billion backlog and a 3% dividend yield. Conversely, 12 analysts advise “Hold,” citing execution risks and regulatory headwinds. One skeptic even calls for a “Strong Sell,” warning of further program overruns.

Conclusion: A Volatile But Resilient Play

Lockheed Martin remains a formidable enterprise with a portfolio spanning aerospace, cyber, and space systems. Its $176 billion backlog and potential for 2026 EPS growth to 9.1% offer a compelling long-term case. However, near-term risks—from classified program losses to DOGE’s cost scrutiny—are significant. Investors must weigh these against the dividend yield and the company’s strategic advantages in a defense budget that remains robust.

With shares down 7.6% over 52 weeks—outperforming Boeing but lagging the S&P 500—the stock is pricing in some of these risks. Yet unless Lockheed can stabilize its classified programs and secure new contracts, the path to recovery will be bumpy. For now, the verdict is clear: Lockheed is a stock for investors willing to bet on resilience in the face of volatility.