Comparing the trend in Lockheed Martin (NYSE: LMT) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially bounce back to $430 once fears surrounding the coronavirus outbreak subside. Our conclusion is based on our detailed comparison of Lockheed Martin’s performance with the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Lockheed Martin Stock Fare During Coronavirus Crisis Compared To S&P 500?
The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31st and April 16, LMT stock has lost 13% of its value (vs. about 14% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia. However, the stock has recouped most of its losses over recent weeks.
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Lockheed Martin’s Stock Has Fallen Because The Situation On The Ground Has Changed
- Lockheed Martin is the largest listed pure-play defense company with the U.S. government as its biggest customer. In fact, the U.S. government contributes almost 70% of the company’s total revenues. Moreover, nearly 28% of the U.S. Department of Defense (DoD’s) total military procurement is supplied by Lockheed Martin. With the coronavirus pandemic hurting the U.S. government’s tax revenues due to the intermittent lockdown of the economy, Lockheed Martin could potentially observe a decline in the number of contracts over the coming quarters.
- We believe LMT’s Q1 and Q2 results will confirm this reality with a drop in Aeronautics and Rotary & Mission segment revenues. If signs of coronavirus containment aren’t clear the near term, it’s likely that Lockheed Martin’s stock along with the broader market is going to see a continued drop when results confirm palpable reality.
But Lockheed Martin Stock Witnessed Something Similar During The 2008 Downturn
- We see LMT stock declined from levels of around $73 in October 2007 (the pre-crisis peak) to roughly $44 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 40% of its value from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by about 51%.
- However, LMT recovered post the 2008 crisis to about $54 in early 2010 – rising by 22% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.
Will Lockheed Martin’s Stock Recover Similarly From The Current Crisis?
- Keeping in mind the fact that LMT stock has fallen by 13% this time around compared to the 40% decline during the 2008 recession, we believe it can potentially bounce back to around $430 once economic conditions begin to show signs of improving. This marks a full recovery to the $430 level LMT stock was at before the coronavirus outbreak gained global momentum.
- That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.
- Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on a diverse set of companies including EOG Resources and Chevron. The complete set of coronavirus impact and timing analyses is available here.