Lockheed Martin Shares Face Downgrade as Key Analyst Shifts Stance

A prominent Wall Street supporter of Lockheed Martin has significantly tempered its outlook, introducing fresh caution into the investment narrative surrounding the defense giant. Morgan Stanley, a long-time bull on the aerospace and defense contractor, has not only downgraded its rating but also substantially reduced its price target, citing a confluence of strategic, operational, and political concerns.

In a decisive move on Tuesday, Morgan Stanley analyst Kristine Liwag revised her firm's stance on Lockheed Martin. The equity rating was lowered from "Overweight" to "Equal-Weight." Concurrently, the price target was slashed to $543 from $630, representing a cut of 13.81%. This adjustment marks a clear pivot from one of the sector's most influential research voices.

This reassessment arrives during a period of heightened investor scrutiny. Since the start of the year, the stock has declined by approximately 13.75% in euro terms, with a similar performance visible over a twelve-month horizon. This price action underscores a growing sense of caution among shareholders compared to the beginning of the year.

The Pillars of the New Cautious Outlook

Morgan Stanley's revised position is built on several interconnected factors that suggest a more balanced risk-reward profile at current valuations.

• Relative Underperformance: The firm notes that Lockheed Martin's stock has trailed the performance of other major U.S. defense primes and the broader S&P 500 index in 2025. This relative weakness removes a primary argument for maintaining a strongly bullish "Overweight" recommendation.

• Structural and Technological Headwinds: The evolution of defense technology presents a challenge. The analysis suggests the company may face pressure as newer priorities, such as advanced sensors, software-defined systems, and unmanned platforms, gain prominence, potentially disrupting the value of more traditional programs.

• Losses on Classified Projects: The company incurred noticeable losses in 2025 from earlier classified programs. While specific details remain undisclosed, this signals to Morgan Stanley that not every major government project reliably contributes to profitability.

• Pension Obligations Weigh on Cash Flow: Ongoing pension funding requirements continue to pressure free cash flow. For a firm whose valuation is closely tied to cash generation and shareholder returns, this is a material consideration in any financial model.

  Should investors sell immediately? Or is it worth buying Lockheed?

• Uncertainty Surrounding the F-35 Program: Additional risks have emerged around the F-35 fighter jet, a cornerstone program for Lockheed. The bank highlights lower projected order volumes from the U.S. government for fiscal year 2026 and questions regarding future demand from European allies.

Synthesizing these points, Morgan Stanley concludes that Lockheed Martin is likely to lag its key competitors in forecasts for revenue growth, earnings per share, and free cash flow per share through the 2025-2028 period.

Political Risk Adds Another Layer of Uncertainty

Beyond fundamental analysis, the report flags a potential political overhang. The possibility of White House-imposed compensation limits on defense contractors is entering the discourse. While no concrete policy has been enacted, the mere discussion introduces an element of regulatory uncertainty that could, depending on its final form, impact cost structures, talent acquisition, and governance for firms reliant on long-term government contracts.

Technical Picture Reflects a Neutral Stance

Despite recent share price weakness, the technical analysis presents a balanced picture. The stock is trading close to its key moving averages, with a recent close of €405.45 sitting just 0.25% above its 50-day average and 0.32% above its 200-day average. A 14-day Relative Strength Index (RSI) reading of 50.3 further indicates a market that is neither overbought nor oversold, but in a neutral state.

This aligns with Morgan Stanley's revised "Equal-Weight" call, suggesting a period of consolidation and reevaluation for a stock that was long considered a defensive favorite.

Conclusion: A Valuation Under the Microscope

Morgan Stanley's downgrade crystallizes several structural concerns: a relative growth slowdown, technological transition risks, pension-related cash flow burdens, and questions around flagship programs like the F-35, all compounded by political risk.

The coming quarters will be pivotal. Lockheed Martin's ability to accelerate its growth trajectory relative to peers and provide clarity on major programs will determine whether this rating change is viewed in hindsight as a temporary precaution or a justified response to enduring challenges. Should these issues persist, the market's current subdued valuation of the company appears to be a logical outcome.