Lockheed Martin's Stock Selloff: Is This a Buying Opportunity or a Structural Shift?

Lockheed Martin's (NYSE: LMT) shares have tumbled 6.4% in early June 2025, marking one of its steepest declines in months. The drop follows a series of near-term challenges—from production delays to leadership upheaval—that have rattled investor confidence. But beneath the noise of short-term volatility, the company retains a commanding position in global defense and aerospace. Is this a fleeting opportunity to buy a beaten-down stock, or a sign of deeper structural issues? Let's unpack the factors driving the selloff and assess its long-term prospects.

The Immediate Catalyst: Pentagon Cuts and Cost Pressures

The immediate catalyst for the recent decline was the Pentagon's decision to reduce its F-35 fighter jet production orders. The F-35 program, which accounts for roughly 25–27% of Lockheed's revenue, is facing a projected 40–50% drop in annual deliveries compared to 2023 levels. This reduction, combined with delays in achieving full combat capability, has created a revenue “gap” that investors are now pricing in.

Compounding these concerns were remarks by CFO Evan Scott at a Bank of America conference in May 2025. He warned of cost overruns on a classified aerospace program—already responsible for over $500 million in charges in 2024—and delays in F-35-related cash flows into the third quarter. These issues, coupled with the abrupt departure of former CFO Jay Malave in March, have amplified fears about execution risks and financial transparency.

Short-Term Headwinds: Program Overruns and Competitive Pressures

Lockheed's struggles extend beyond the F-35. In late 2024, the company reported a $2 billion loss across two classified programs, driven by overruns in its Missiles and Fire Control (MFC) and Aeronautics divisions. The MFC program alone accounted for a $1.4 billion loss, while an aeronautics project added $555 million in charges due to “complex design and integration issues.”

Worse, the company lost a $20 billion contract for the Next Generation Air Dominance (NGAD) program to Boeing in March 2025—a significant blow to its future revenue pipeline. This loss underscores intensifying competition from rivals like Boeing and SpaceX, which are leveraging disruptive pricing and agility in markets such as missile defense and space systems.

Regulatory headwinds also loom large. The Department of Government Efficiency (DOGE) has stepped up scrutiny of defense contractor cost discipline, particularly for fixed-price contracts—a common structure in classified work. This has squeezed margins and added uncertainty to Lockheed's financial outlook.

Long-Term Strengths: A Robust Backlog and Technological Edge

Despite these near-term challenges, Lockheed's fundamentals remain solid. The company boasts a $173 billion backlog, with 70% tied to recurring programs like the F-35, hypersonic weapons, and satellite systems. Its leadership in advanced technologies—from the Next Generation Interceptor (NGI) missile to lunar exploration partnerships with NASA—positions it to capitalize on global defense modernization trends.

The F-35 program, though temporarily strained, remains a cash engine. Over 4,000 jets are projected to be produced through 2040, with 20 nations participating in the program. Meanwhile, emerging markets like hypersonics (e.g., the JASSM-ER missile) and space systems (e.g., the OPIR satellite network) are expanding Lockheed's addressable market.

The Investment Case: Buy the Dip or Avoid the Risk?

Lockheed's stock currently trades at a 27% discount to its all-time high, with a price-to-earnings (P/E) ratio of 16.5—below its five-year average of 19. Analysts project 8–10% annual revenue growth through 2027, driven by hypersonic weapons and classified programs. The company's dividend yield of 2.95% adds further stability.

However, risks remain. The NGAD loss and F-35 delays could persist, and DOGE's regulatory push may further squeeze margins. Investors must weigh whether the current dip reflects temporary execution issues or a broader loss of competitive moat.

Final Analysis: A Long-Term Hold with Near-Term Caution

Lockheed Martin is not without flaws, but its dominance in high-margin defense tech and a robust backlog suggest it remains a core holding for investors with a multi-year horizon. The recent selloff offers a potential entry point for buyers willing to tolerate short-term volatility.

Recommendation:
- Bullish investors might consider adding to positions at current levels, particularly if the stock tests its 52-week low of $423.
- Neutral investors should wait for clearer visibility on F-35 production ramps and classified program cost controls.
- Avoiders should focus on competitors like Raytheon (RTX) or Boeing (BA), which have less exposure to classified overruns.

In sum, Lockheed's stumble is a reminder that even titans face execution risks. Yet its technological leadership and global demand for advanced defense systems make it a stock worth watching—especially if near-term headwinds prove transient.