Lockheed Martin: Segment Growth and Cash Flow Strength Offset by Pension Normalization and Delayed FCF Inflection, Supporting Neutral (Hold) Rating

UBS analyst Gavin Parsons maintained a Hold rating on Lockheed Martin today and set a price target of $663.00.

Gavin Parsons has given his Hold rating due to a combination of factors related to both strengthening fundamentals and lingering constraints on long-term cash generation. He highlights that Lockheed Martin’s Missiles and Fire Control unit is set for notable expansion, supported by new framework arrangements with the Department of War for PAC-3 and THAAD, which meaningfully enhance revenue visibility and expected returns. These deals underpin a robust growth outlook for this segment into 2026 and beyond, and the company’s updated guidance points to stronger-than-anticipated operating cash flow that can accommodate a sizable increase in capital expenditures while still outperforming previous expectations. In the near term, recent free cash flow performance was substantially ahead of forecasts, even after sizable pension pre-funding, reflecting solid operating execution and working capital benefits.

At the same time, Parsons underscores that a substantial portion of the current free cash flow strength stems from pension over-earning, which he expects to fade, resulting in essentially flat free cash flow through 2028 despite higher earnings and capex deployment. Once pension cash flows normalize, he projects a more meaningful step-up in free cash flow only starting in 2029, limiting the near- to medium-term upside for investors. He also notes that while the Missiles and Fire Control segment is performing well and is margin-accretive to the overall portfolio, the other three business segments still show relatively modest growth, muting the overall growth profile of the company. Given this mix of accelerating segment-level growth and improved cash generation on one hand, but delayed free cash flow inflection and uneven growth across the broader portfolio on the other, he judges the risk/reward as balanced and therefore maintains a Neutral (Hold) stance on the shares.

In another report released yesterday, Jefferies also maintained a Hold rating on the stock with a $630.00 price target.