Global Arms Race Huge for LMT Stock
There’s no stopping Lockheed Martin Corporation (NYSE:LMT) in 2016. Lockheed Martin stock has been setting new records on a daily basis. That is no exaggeration. At the end of March, LMT stock was trading in the mid-$220.00s per share. By the end of April, LMT shares started to move to the $230.00 range, closing at $234.70, a new record-high.
The recent success of Lockheed Martin stock begs the question of how long it can keep up the current bullish run. Deutsche Bank, for instance, set a $230.00 price target last March with a “Hold” rating. LMT stock has been there and done that. The next reasonable target is from Beremberg Bank, which sets it at $250.00. The fact is that the climate around Lockheed Martin is more bullish than that. (Source: “Lockheed Martin Corporation (NYSE:LMT) Analyst Review,” Risers and Fallers, April 29, 2016.)
Regardless of who will occupy the White House in 2017 (unless it’s Bernie Sanders, which is nearly impossible now) defense spending is going up. If it’s Hillary Clinton, who has a rather neo-conservative bend on foreign matters, the U.S. Army will need the kinds of equipment to sustain long-term campaigns and occupations from tanks to large aircraft. In recent days, Lockheed Martin “F-22 Raptors” have landed in key airports in Lithuania, Poland, and Romania as a show of strength near the Russian frontier.
A Trump presidency will give preference to quick and stealthy action to support immediate U.S. interests while avoiding long-term interventions. Trump’s foreign policy will favor the use of drones and special ops equipment, which Lockheed Martin can supply in large numbers. However, there is also the issue of China’s expansionism, which will require upgrades to the military naval fleet. Australia, for instance, has recently ordered some $40.0 billion of submarines from France to confront China’s ambitions.
In recent years, General Dynamics Corporation (NYSE:GD) has been the main naval equipment contractor. But Lockheed Martin is expanding its presence in that growing sector. Lockheed has joined forces with key South Korean manufacturer Daewoo Shipbuilding and Marine Engineering (DSME) to build a series of corvette-like multi-mission combat ships. (Source: “Lockheed Martin, Daewoo partner for combat ships,” United Press International, May 2, 2016.)
For this partnership, DSME will deal with the actual boat component while Lockheed Martin will contribute its systems integration. This will reduce costs, making the fast and rapid response ships competitive in international tenders worldwide.
DSME and Lockheed should find it easy to work together. South Korean manufacturers are used to working with American defense sector contractors, especially in the naval field. Still, South Korean shipyards struggle to win contracts beyond their borders. Certainly, the two major regional powers, Japan and China, are going to source domestically. Americans, for their part, face difficulties competing for tenders because of the higher U.S. production costs. Therefore, the alliance between Daewoo and Lockheed Martin blends the efficiency of Korean shipbuilding with the performance of American equipment.
Meanwhile, in the same Asian region, defense spending is piling up. Japan is buying more than 40 LMT “F-35” joint strike fighter (JSF) jets. Japan has also asked the Pentagon for the right to buy the “F-22 Raptor,” even though the U.S. government does not allow the Pentagon to export them beyond the United States.
There is a new wave of military spending in Asia, resulting from emerging powers asserting their regional ambitions against a growing China. Lockheed Martin is right there to take advantage of the resulting market.