Goldman Sachs Says Buy the Dip on This Boeing Rival

LMT stock has been selling off since its early October peak

Oct 24, 2018 at 10:36 AM
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Goldman Sachs upgraded Lockheed Martin Corporation (NYSE:LMT) to "buy" from "neutral," and added the Boeing (BA) rival to its "conviction list," saying a "recent pullback in shares makes valuation more attractive." The brokerage firm also raised its price target by $3 to $394. Nevertheless, the shares are down 0.6% at $319.33, after Bloomberg reported LMT's potential $15 billion THAAD deal with Saudi Arabia could be at risk following the death of journalist Jamal Khashoggi.

This bull note follows Lockheed Martin's turn in the earnings confessional yesterday morning, with the aerospace firm reporting better-than-expected third-quarter earnings and revenue, and boosting its full-year forecast. The results earned praise from a handful of other analysts, as well, including Vertical Research, which called LMT's guidance "encouraging."

Overall, the bulk of the 15 brokerages covering Lockheed Martin stock maintain a "buy" or better rating, with not a single "sell" on the books. Plus, the average 12-month price target of $380.16 is a 19% premium to current trading levels.

This optimism appears limited to analysts, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), LMT's 10-day put/call volume ratio of 1.28 ranks in the 97th annual percentile, meaning puts have been bought to open over calls at a quicker-than-usual clip.

Drilling down, the weekly 10/26 310-strike put saw the biggest increase in open interest over this two-week time frame with 2,085 contracts added. Data from Trade-Alert indicates most of the puts were bought to open on Monday for a volume-weighted average price of $1.62 -- making breakeven for the put buyers at this Friday's close, when the series expires, $308.38 (strike less premium paid).

It's been a choppy year for LMT stock, which hit a record high of $363 on Feb. 16. The shares sunk as low as $291.85 in late June, before rallying back up to $351 earlier this month. Since touching that recent peak, though, Lockheed Martin shares have shed 8.7%, and surrendered a short-term foothold atop their 80-day moving average.

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