Lockheed Martin Stock Dips as BofA Analyst Lowers EPS Estimates After Air Force Contract Setback

Lockheed Martin Corporation, the world's largest defense contractor by revenue, has seen its stock dip following a significant setback in securing a major Air Force contract. The company's stock price has been under pressure as Bank of America (BofA) analysts lowered their earnings per share (EPS) estimates, reflecting the potential impact of losing the $20 billion Next Generation Air Dominance (NGAD) fighter jet contract to Boeing. This development has raised concerns about Lockheed Martin's short-term and long-term financial performance, as well as its market position in the defense industry.



The NGAD contract, valued at $20 billion, was a critical opportunity for Lockheed Martin to bolster its revenue and earnings. The loss of this contract is expected to have a significant impact on the company's financial performance. In 2024, Lockheed Martin's revenue was $71.04 billion, an increase of 5.14% compared to the previous year's $67.57 billion. Earnings were $5.34 billion, a decrease of -22.89%. The loss of the NGAD contract could exacerbate this earnings decline, as the contract would have contributed substantially to Lockheed Martin's top and bottom lines.

The impact of the NGAD contract loss extends beyond short-term financial performance. Lockheed Martin's market position and future contract opportunities could also be affected. The company is one of the largest in the markets where it operates and is the world's largest defense contractor by revenue for fiscal year 2014. In 2013, 78% of Lockheed Martin's revenues came from military sales; it topped the list of US federal government contractors and received nearly 10% of the funds paid out by the Pentagon. The loss of the NGAD contract could potentially reduce Lockheed Martin's share of future defense contracts, impacting its long-term growth prospects.



To mitigate the effects of the NGAD contract loss, Lockheed Martin can employ several strategies. First, the company can focus on diversifying its revenue streams by increasing its commercial and other contracts. In 2009, US government contracts accounted for $38.4 billion, foreign government contracts for $5.8 billion, and commercial and other contracts for $900 million. By increasing its focus on commercial and other contracts, Lockheed Martin can reduce its dependence on US government contracts and mitigate the impact of losing a single large contract.

Second, Lockheed Martin can invest in research and development to stay competitive in the defense market. The company engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. By continuing to invest in R&D, Lockheed Martin can develop new technologies and products that will make it more competitive in future defense contracts.

Third, Lockheed Martin can pursue strategic partnerships and acquisitions to expand its capabilities and market reach. The company operates through four segments: Aeronautics; Missiles and Fire Control (MFC); Rotary and Mission Systems (RMS); and Space. By pursuing strategic partnerships and acquisitions, Lockheed Martin can expand its capabilities in these segments and increase its market reach, making it more competitive in future defense contracts.

Finally, Lockheed Martin can focus on cost management to improve its profitability. The company's cost of revenue in 2021 was $14.04B, an increase of 3.51% from the previous year. By focusing on cost management, Lockheed Martin can reduce its cost of revenue and improve its profitability, making it more resilient to the impact of losing a single large contract.

The lowered EPS estimates for Bank of America could have several potential implications for investor sentiment and stock price volatility for Lockheed Martin. Firstly, Bank of America's lowered EPS estimates indicate a decline in the company's profitability, which could signal broader economic challenges or sector-specific issues. This could lead investors to reassess their expectations for Lockheed Martin, a major defense contractor, as defense spending is often tied to economic conditions and government budgets. For instance, in 2009, US government contracts accounted for $38.4 billion, foreign government contracts for $5.8 billion, and commercial and other contracts for $900 million, highlighting the significant reliance on government spending. If investors perceive a potential reduction in defense spending due to economic downturns or budget cuts, it could negatively impact Lockheed Martin's stock price.

Secondly, the lowered EPS estimates for Bank of America could increase market volatility, which could spill over to other sectors, including defense. Increased volatility often leads to heightened risk aversion among investors, who may seek safer havens or reduce exposure to stocks perceived as riskier. Lockheed Martin, despite being a stable company with a strong business model and low beta, could still experience increased volatility due to broader market conditions. For example, the VIX index, which measures market volatility, was at 18.57 on March 24, 2025, indicating a moderate level of volatility. Any increase in this index could signal heightened market uncertainty, affecting Lockheed Martin's stock price.

Thirdly, the lowered EPS estimates for Bank of America could influence investor sentiment towards the broader market, including defense stocks. If investors perceive a weakening economic outlook, they may become more cautious about investing in stocks, including Lockheed Martin. This could lead to a decrease in demand for Lockheed Martin's stock, potentially driving down its price. For instance, the S&P 500 index was at 4,411.79 on March 24, 2025, and any significant decline in this index could signal a broader market downturn, affecting investor sentiment towards Lockheed Martin.

In conclusion, the recent setback in the Air Force contract and the lowered EPS estimates for Bank of America have significant implications for Lockheed Martin's financial performance and market position. While the company faces challenges in the short term, it has several strategies at its disposal to mitigate these effects and maintain its long-term growth prospects. Investors should closely monitor Lockheed Martin's performance and the broader market conditions to make informed investment decisions.