- The Washington Times - Monday, August 29, 2005

Lockheed Martin Corp.’s growth rate could slow, with several industry analysts projecting yesterday that increases in defense spending are reaching their peak.

Although the Bethesda defense contractor has shown solid revenue growth, the analysts said they are concerned about looming cuts to the company’s F/A-22 Raptor Stealthfighter and F-35 Joint Strike Fighter projects.

“We are looking at a mid- to low-single-digit growth for the company. This is certainly not a blockbuster growth story,” said Myles Walton, a senior analyst with global investment bank CIBC World Markets.

Mr. Walton, who rated the nation’s largest defense contractor as outperforming other companies in the defense group, does not own any company stock. CIBC has no business with Lockheed.

Analyst Howard Rubel said it was unlikely that the federal government in the near future would increase its defense budget roughly 52 percent, as it did from $330 billion in fiscal 2002 to $500 billion in fiscal 2005.

“In an odd sort of way, there is an element where Lockheed is the victim of its own success,” said Mr. Rubel, with investment bank Jefferies & Co. Inc.

“The company has done a nice job building up expectations for more growth in the face of fewer opportunities,” he said, advising investors to hold their stock.

Mr. Rubel does not own any Lockheed stock, and Jefferies has no business with the company.

Troy Lahr, an aerospace defense analyst, argued that the federal government’s budgets project a 7 percent to 8 percent spending increase in areas from which Lockheed and other defense contractors draw most of their contract dollars.

“It probably will not be until 2009 that spending starts slowing down,” said Mr. Lahr, with Baltimore brokerage firm Legg Mason Wood Walker Inc.

U.S. defense budgets in the past have been robust when the nation faced significant threats, Mr. Lahr said, adding that the U.S. still faces a high threat environment.

Mr. Lahr, who rated Lockheed as a “buy,” does not own any company shares, and Legg Mason has no banking relationship with Lockheed.

Lockheed last week expanded outside its main business, winning a $212 million contract to set up an electronic security system in New York’s subway system.

Lockheed, which won the three-year project from the New York Metropolitan Transportation Authority, will install more than 1,000 cameras and 3,000 sensors.

Shares of Lockheed Martin on the New York Stock Exchange, which have stayed in the low $60 range for the past two months, closed yesterday at $62.67.

The company recently beat analysts’ expectations for the second quarter.

Lockheed’s quarterly income surged 56 percent to $461 million ($1.02 per diluted share) from $296 million (66 cents) a year earlier.

Diluted earnings include the value of convertible warrants and stock options.

Sales during the quarter jumped 6 percent to $9.29 billion from $8.77 billion a year earlier.

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