Why Lockheed Martin Stock Popped Today
Key Points
UBS upgraded Lockheed Martin stock to buy today.
Double-digit earnings growth is in the forecast for this defense giant.
Lockheed stock hitting $674 per share within a year isn't out of the question.
Lockheed Martin (NYSE: LMT) stock jumped 2.5% through 11:50 a.m. ET this morning.
You can thank Swiss investment bank UBS for that.
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Why UBS loves Lockheed stock
Lockheed Martin isn't expected to report earnings again until late October, but that isn't stopping UBS from making its recommendation now: Buy Lockheed Martin stock, which costs only $538 per share but is set to reach $674 per share within a year.
UBS bases its upgrade on the belief that Lockheed's F-35 fighter jet franchise, plus missile sales, will result in "stronger and more durable earnings growth than investors currently expect," as StreetInsider.com reports today.
How much stronger? With Lockheed's book-to-bill ratio hitting a massive 3.2x in the most recent quarter, UBS sees Lockheed's sales growing 9% annually over the next 2-3 years, with earnings growth in the double-digits. This isn't an uncommon view, either. Indeed, according to data from S&P Global Market Intelligence, most analysts following Lockheed are forecasting earnings growth in the 19%- plus range over the next five years.
How to value Lockheed Martin stock
And honestly, this is the time frame I'd focus on as an investor: Long-term -- five years out or more -- not just the next couple of years. As UBS points out, depleted U.S. weapons inventories should keep Lockheed Martin busy building missiles as far out as 2030 or even 2035.
Meanwhile, Lockheed Martin stock costs barely 19.2 times earning -- and less than 14 times free cash flow. Weighed against the company's 19% expected growth, and supported by a healthy 2.6% dividend yield, Lockheed Martin stock may be one of the best buys in defense today.
UBS thinks it's a buy -- and I agree.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lockheed Martin. The Motley Fool has a disclosure policy.