Lockheed shares could give up all of their gains from last year

It’s time to pull out of Lockheed Martin Corp (NYSE: LMT) since the months ahead will likely be rough for the defense stock, says Noah Poponak. He’s a Research Analyst at Goldman Sachs.  

Lockheed shares could lose 25% this year

Poponak downgraded the aerospace and defense technology company in a recent note to “sell” and trimmed his price objective to $332 that represents about a 25% downside from here.

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The defense budget has grown significantly to an all-time high level, and with a large level of cumulative U.S. government debt, focus on slowing spending growth or reducing it outright could return in 2023.

If true, the analyst added, Lockheed shares will particularly be at risk considering its rather huge exposure (75%). Over the past three months, this defense stock has gained nearly 20% making it a suitable time for investors to take profit.  

Lockheed Martin faces other headwinds as well

Lockheed Martin is expected to report its Q4 earnings next week. Consensus is for it to earn $7.41 a share – up from $7.24 per share a year ago. But the Goldman Sachs analyst wrote:

Defense budgets, company earnings, and valuations are all near all-time highs, creating more downside risk, leaving stock prices vulnerable to medium-term de-rating. U.S. fiscal policy could increasingly become a downward pressure.

Halted F-35 deliveries, and uneven future growth in Blackhawk and OPIR also fed into his dovish view on Lockheed shares.

Poponak no longer expects the Bethesda-headquartered firm to note a meaningful growth in cash flow over the next few years. He’s not currently very constructive on the defense and aerospace industry at large.