Is Lockheed Martin Corporation (NYSE:LMT) a $500 Stock?

Lockheed_Martin_CorporationLockheed Martin Corporation (NYSE:LMT) has been trading in the $210 range, close to its 52-week high of $213.02. But it is bound to climb toward higher altitudes in response to more contracts from the Pentagon and the reawakening of Russian military and geopolitical ambitions.  Lockheed Martin stock has risen by almost four percent over the past four weeks and 11.5% in the past three months.

In fact, Lockheed Martin stock has risen 11.8% overall this year. Bernstein Research has set a $222.00 per share price target for LMT stock, raising it from $215.00 per share last September. Today, October 7th, LMT is already trading at $213.50—well within the range set by analysts.

For starters, LMT will see resistance to sales of its F-35 weaken.

Then there are new options:

Lockheed Martin to Install Lasers on the F-35

The U.S. Department of Defense said on Tuesday that it expected to sign a deal this fall with Lockheed Martin for contracts worth $15.0 billion for the next two batches of F-35 fighter jets.

“We are still in negotiations,” said Frank Kendall, undersecretary of defense for acquisition, technology and logistics, to the press after a launching ceremony of the first F-35 built in Norway. (Source: Lockheed eye agreement on next F-35 contracts this fall, Reuters, September 22, 2015.)

LMT has also started to make combat lasers for the U.S. Army. In April 2014, the company received a U.S. Army contract for the development, manufacturing, and testing of a laser with a power of 60 kilowatts, which could be increased to 120 kilowatts. The laser would be used to destroy unguided missiles, artillery shells, mortar bombs, and drones.

Boeing engineers have also built a laser cannon to destroy drones. The technology is not entirely new, but its use in a fighter jet is groundbreaking. The weapon uses an infrared laser with a power of two kilowatts. The F-35A, used by the U.S. Air Force, has already started to upgrade radar, avionics, and engines to match competitors. Russia’s reentry in the big power game can only accelerate this development.

Therefore, the USAF, according to Major General Jeffrey Harrigian in charge of the F-35 program, wants Lockheed Martin to include “new avionics systems, radar, laser weapons and a new more fuel-efficient engine […] I don’t think we would take anything off the table at this point.” (Source: USAF plans for radical F-35 upgrade reveal obsolescence, Defense-Aerospace.com, April 8, 2015.)

Meanwhile, in the wake of its acquisition of Sikorsky Helicopters from United Technologies last July, Lockheed Martin Corporation may pursue rationalization of some of its activities, especially in IT, with one of its competitors to reduce costs.

Russia’s War Will be a Boon for Lockheed Martin

Despite sanctions, Russia’s largest defense contractors are thriving and reaching new highs. (Source: Top 100 Ranking: Russia’s Defense Industry Hits New High Amid Sanctions, Sputnik News, July 28, 2015.) United Aircraft Corporation, the company that makes the Sukhoi 37 and MiG 29 fighter jets, was ranked 14th with $6.2 billion in revenues, while overall Russian defense exports reached a record $13.2 billion in 2014.

This unquestionably is a return of Russia on the international scene. Putin has now decided that it needs the West to continue to see it as an adversary. The Kremlin’s determination to fight the Islamic State, taking advantage of its ties to Syria, with a very good chance at succeeding where NATO and the West have failed, allows Russia to regain the diplomatic weight it lost with the crisis in Ukraine.

The campaign will show the world that Russia is a contender, if not a reliable partner, to resolve crises that threaten the world order. This is something that many in the West seem to have forgotten. Certainly, the West may even be afraid that Russia succeeds in defeating the Islamic State. By doing so, it would force many to recognize that it must work with Russia to succeed in delicate regions like the Middle East. If Russia forms a single coalition with Middle Eastern countries such as Iran, also securing support from China, the IS would not withstand a ground offensive by a joint force of Syrian, Russian, and Iranian troops.

For Putin, restoring Russia’s international image is also a way to boost its military industrial complex—the partial dismantling of which caused an inferiority complex for the Russian nation since the breakup of the USSR. Therefore, Putin is active in many international scenarios from Iran to Syria and beyond.

The international embargo against Iran actually played to Russia’s favor because it was a buttress against a further collapse of oil prices. However, the agreement on the Iranian nuclear issue has changed the game as Iran’s reentry in the oil market has added pressure on the Russian economy. From the Russian point of view, a pro-American Iran might be more dangerous than a nuclear Iran.

Still, Putin endorsed the final agreement, just as it is endorsing Iran’s ally in Syria. Presumably, Putin will support the idea of exporting Iranian gas to South Asia and East (gas pipeline projects to the Iranian port of Chabahar and the Pakistani port of Gwadar, China-Pakistan corridor and “new Silk Road”).

In Syria, Russia intends to maintain its “active” geostrategic Middle East and the Eastern Mediterranean (Tartus is the only port Russia controls in the Mediterranean and it is located halfway between Turkish Straits and the Suez Canal).

Nevertheless, Washington and NATO have underestimated Putin’s desire to avenge the loss of the Cold War. Vladimir Putin has also shown he has the will and mandate to enforce Russia’s interests where he considers these essential.

In Ukraine’s case, Russia did not start the conflict, even if it felt obliged to take measures to defend its interests in the same way as other countries defend their own. Nonetheless, Russia is still a nuclear superpower. It is also one of the five permanent members of the Security Council with veto power. This makes it essential to address the problems of the planet.

Apart from Ukraine, Russia is also engaged in other conflicts related to the post-Soviet aftermath such as Transnistria in Moldova, Abkhazia, and South Ossetia in Georgia. If needed, Russia is ready to use arms to force geopolitical situations to its favor. This has been construed in some European and NATO circles as a Russian threat to peace.

Militarily, Can Russia Compete?

If Russia wants to avoid the kinds of mishaps that the United States has seen in Iraq and Afghanistan, it will have to limit its military commitment.. Besides, the Russian army would have great difficulty in projecting the level of force and power that would be required for a greater commitment, not to mention the possible consequences for the Russian public.

Militarily, the Kremlin is overseeing a major rearmament effort. The Russian military budget is the third-largest in the world (USA: $577 billion, China: $145 billion, Russia: $78.0 billion), but far behind the United States or even China. Russia does have strategic nuclear weapons which afford it diplomatic strength. Yet, Russia is still the only country that the United States cannot attack without the risk of mutual assured destruction.

Russia’s military renaissance will also add impetus to Saudi Arabia’s penchant for buying weapons. In 2014, the Kingdom was the world’s top importer of weapons. Lockheed Martin stockholders can expect this trend to continue in the next few years, given the rising tension in the Middle East.

Here’s the Bottom Line on Lockheed Stock

This means that to gain a tactical advantage in dealing with Russia, the United States must rely on advanced conventional weapons. The oil crisis and the economic sanctions imposed by the West to Russia considerably weaken its economy. Therefore, this is where Lockheed Martin, which has emerged as the largest military contractor in the U.S., if not the world, can make strong gains over the next few years thanks to the return of Russian diplomatic and military ambitions in its quest for a return to superpower status.

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