Analyst Note| Burkett Huey, CFA |
In our view, Lockheed Martin is the highest quality defense prime contractor due to its prime position on highly prioritized programs, particularly the F-35, and the company’s portfolio positioning toward areas of secular spending growth, especially missile-related and space technologies. We think the market’s legitimate concern that substantial fiscal stimulus in 2020 ought to stymie medium-term defense spending growth creates an opportunity for investors as we anticipate that Lockheed can continue growing organic revenue at a low mid-single-digit pace despite a slowing spending environment. Our view is predicated on our opinions that the defense budget will flatten, rather than shrink, and that U.S. perception of danger from great powers will shift more of the budget toward contractors. We think that Lockheed’s position as the highest-quality contractor should give investors more confidence in its ability to continue growing despite a slowing budgetary environment.