Why Lockheed Martin Stock Keeps Going Down
Key Points
Lockheed Martin "missed" on earnings yesterday.
Lockheed stock has fallen for nine straight days, and its book-to-bill ratio looks miserable.
Nine straight days of losses for Lockheed Martin (NYSE: LMT) came thudding to a close on Friday, with the defense stock dropping a final 4% to close out earnings week. And while Lockheed's stock market losses had no obvious catalyst before -- now they clearly do.
As I wrote yesterday, Lockheed Martin missed on both sales and earnings, reporting per-share profit $0.30 below analysts' forecasts -- and negative free cash flow for the quarter. Sales flatlined year over year, and Wall Street isn't happy about that.
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What Wall Street thinks about Lockheed Martin today
The next shoe dropped Friday morning, with four analysts lining up to cut price targets on Lockheed. Susquehanna -- the most optimistic of the bunch -- lowered its target only to $700, a number that still implies Lockheed shares could rise 38% this year. But Morgan Stanley cut deeper to $653, Bank of America said $600, and RBC Capital thinks the stock is worth at most $575.
So the most pessimistic take still sees Lockheed stock as worth 13% more than it costs today -- yet even RBC cannot bring itself to recommend buying Lockheed stock, rating it only "sector perform."
As RBC explains today in a note on StreetInsider.com, its main concern about recommending Lockheed is that "bookings were soft in the quarter." Lockheed's book-to-bill ratio was a lowly 0.6.
What it means for Lockheed stock
Ordinarily, a 0.6x ratio would imply Lockheed's sales are due to decline. But that doesn't jibe with management's insistence that it's been signing multi-year contracts with the Pentagon to treble or even quadruple missile production -- and missile sales -- nor with Lockheed's prediction that sales will grow 3% to 6% this year.
My hunch: Sales are due to perk back up. Lockheed stock still looks attractive to me.
Bank of America is an advertising partner of Motley Fool Money. Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.