In late October, Lockheed Martin (LMT) and the U.S. Department of Defense agreed on a 10-year framework deal for the F-35 fighter jet program. If the deal is fully approved, LMT will have orders locked in for the next decade.
Based on that, Morgan Stanley upgraded Lockheed Martin to Overweight from an Equal-weight rating on Oct. 26 and raised its price target from $690 to $835, CNBC reported.
The market also reacted strongly to the news. LMT is up almost 13% over the past five days and about 27% so far this year.
Lockheed Martin’s 10-year F-35 deal
Lockheed Martin builds fighter jets, missiles, satellites, and helicopters, mostly for the U.S. government and its allies. Its most popular product is the F-35 fighter jet, which brings in close to 30% of the company’s total revenue.
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Under the framework deal the company just agreed with the government, Lockheed will build at least 850 F-35 jets for the U.S. over the next 10 years. That means the company will build about 85 aircraft a year under the framework alone.
Investors were initially worried that the Department of Defense might cut or scale back its F-35 fighter jet program to shift money into missile manufacturing, but this framework agreement eased those worries.
“This announcement effectively removes this risk from the stock and supports the role of the F-35 in U.S. and allied air dominance, in our view,” Morgan Stanley analyst Kristine Liwag, who has covered aerospace and defense for more than a decade, wrote.
Why the $835 LMT price target points to nearly 40% upside
The new $835 target suggests that Morgan Stanley sees the stock increasing by about 38% from where the stock traded just before the recent run, Yahoo Finance reported.
Liwag noted that, apart from the F-35 deal, the company’s record $292 billion contract backlog and strong growth in missile production also explain the bank’s view of a potentially substantial increase.
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The contract backlog in particular is a good confidence booster. A backlog simply means Lockheed has already signed orders but has not yet delivered them.
Most of Lockheed’s backlog comes from governments, and it’s rare for governments to cancel orders for defense products once there are contracts in place. That means the company has an almost secure stream of future revenue, even if the wider economy slows down.
The strong third quarter that drew Wall Street’s attention
Another factor that caught Wall Street’s attention was Lockheed’s third-quarter earnings report on Oct. 22. Lockheed Martin posted earnings per share of $7.97 on $20.7 billion in revenue, both higher than the $7.52 and $20.46 billion that Wall Street expected.
The company’s management also raised its full-year 2026 revenue guidance to between $80 billion and $82 billion.
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In addition, the missiles division grew 24% from a year ago. That part of the business makes systems such as PAC-3 and THAAD, which the U.S. and its allies rely on for air defense.
CEO Jim Taiclet then said in the earnings release that “the sustained financial momentum across our portfolio gives us confidence to increase our outlook for sales, earnings per share and free cash flow.”
Heading into the earnings report, UBS kept a positive view on the stock, saying strong growth prospects in the company’s munitions business should keep supporting earnings into 2027, Investing.com noted.
What this means for investors looking at LMT
The main risk here is that if Washington shifts its spending priorities, new F-35 orders could slow down. Lockheed has even warned that the company’s cash flow could suffer if contracts for F-35 Lots 20 and above are not approved on time.
However, the company’s backlog already covers more than three years of sales, so the business can still make money, even if there is a short-term budget delay.
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