Why Lockheed Martin Shares Plunged Today

Shares of major defense contractor Lockheed Martin (NYSE: LMT) fell hard on Friday, down 7% as of 12:31 p.m. EDT on Friday.

Lockheed shareholders received the unfortunate news that the Trump administration has chosen rival Boeing (NYSE: BA) to produce the military's next-generation fighter plane.

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Lockheed loses out

On Friday, the Trump administration announced it had awarded Boeing the $20 billion initial contract to produce the F-47, the sixth-generation fighter jet for the U.S. Department of Defense. It was a big upset for Lockheed Martin, which had been the favorite to win the contract among analysts. Lockheed is the manufacturer of the fifth-generation fighter jet, the F-35, for which it won the contract back in 2001 and which it began producing in 2006. Lockheed also produces the older F-22.

The F-35 has been a controversial piece of defense equipment, as it's the most expensive weapon system in history, production was plagued by delays, and its usefulness relative to its cost has come into question. The Government Accountability Office, a nonpartisan agency that provides Congress with information on major government programs, noted last year that the projected costs to sustain the F-35 program have ballooned by 44% since 2018, from a projected $1.1 trillion to $1.58 trillion. The cost to maintain a single F-35 is now $6.6 million annually, well above the $4.1 million originally projected. This is in spite of the emergence of advanced unmanned drones, which have removed some of the need for advanced manned warfighters.

It's unclear whether these cost overruns were the main factor in awarding the $20 billion F-47 contract to Boeing, which has had its own spate of well-publicized difficulties producing commercial jets in recent years.

What investors should do

Today's upset is certainly not great news for Lockheed investors; however, the loss of the contract isn't a death knell for the stock, either. As of last year, the U.S. sustains about 630 F-35s, but it's likely to buy 2,500 in total by the 2040s and sustain the F-35 program into the 2080s.

That should sustain Lockheed's F-35 revenue and profits for decades. Moreover, Lockheed will now have the opportunity to bid on other advanced weapon programs and divert its capacity there.

That said, today's loss adds a bit of uncertainty to Lockheed's medium-term growth profile. This is on top of the increased uncertainty around defense spending in general, which has come under further scrutiny under the new administration and its Department of Government Efficiency (DOGE) program.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.