Lockheed Delivers SPY-7 Radar-Equipped Shipset to Japan: What's Next?

Lockheed Martin Corp. LMT recently delivered the first Aegis System Equipped Vessel (“ASEV”) shipset, containing four AN/SPY-7(V)1 radar antennas, to the Japan Ministry of Defense (“JMOD”). The JMOD is set to acquire two ASEVs, both of which are on track for commissioning by March 2027 and 2028. 

The latest delivery further strengthens the long-standing security alliance between the United States and Japan, which dates back to as early as 1951, and to which Lockheed Martin plays a key role by delivering cutting-edge defense technologies to the JMOD.  Notably, LMT supplies a handful of its combat-proven products, including the F-35 fighter jet, Black Hawk and Sea Hawk helicopters, as well as the Aegis combat systems to strengthen Japan’s security force. 

This delivery also reflects Lockheed’s growing dominance in the radar market, driven by its SPY-7 radar, which offers advanced detection and tracking capabilities. LMT also considers it to be the most powerful and versatile radar globally. The radar’s proven effectiveness in naval defense has likely contributed to its rising international demand, with SPY-7 technology slated for deployment on Spain’s F-110 Multi-Mission Frigate and Canada's River-Class Destroyer, in addition to Japan’s ASEV.

Considering the above discussion, the latest development in terms of the delivery may appeal to investors seeking exposure to robust defense stocks, particularly those focused on advanced radar capabilities, making LMT a compelling addition to their portfolio. However, before making an investment decision, one must conduct a comprehensive evaluation of Lockheed’s stock market performance, long-term growth potential, valuation, and any associated risks to investing in it.

LMT Stock’s YTD Performance

Shares of Lockheed have lost 4.7% in the year-to-date period, underperforming the Zacks Aerospace-Defense industry’s growth of 21.8% and the broader Zacks Aerospace sector’s rise of 22.5%. The stock has also lagged the S&P 500’s return of 5.4% during the same period.

On the contrary, LMT’s industry peers, The Boeing Company BA and Embraer S.A. ERJ, have gained substantially in the year-to-date period. Shares of ERJ rose 62.6%, while those of BA grew 23.5%.

Long-Term Growth Drivers for Lockheed

While Lockheed, being the largest U.S. defense contractor, boasts a diverse portfolio of defense products ranging from long-range missiles to small-diameter bombs, the F-35 program remains a key long-term growth driver for the company. LMT has delivered 1,149 F-35 airplanes since the program's inception as of March 30, 2025. Looking ahead, F-35 production is expected to continue for many years, given the U.S. government's current inventory target of 2,470 aircraft by 2040 and this program’s backlog, which reached 361 jets as of the end of March 2025. Such a robust backlog and inventory count should enable F-35 to continue to contribute significantly to LMT’s revenues over the long run, with F-35 accounting for 25% of first-quarter 2025 sales. 

Lockheed’s strong forte as a prominent defense contractor in the international market also serves as its key long-term growth catalyst. The company witnesses strong interest from its international customers in Patriot Advanced Capability-3 (PAC-3) missiles and Terminal High Altitude Area Defense (THAAD) system, with 17 nations choosing PAC-3 Cost Reduction Initiative and PAC-3 Missile Segment Enhancement to enhance their missile defense capabilities. Additionally, its S-70 Black Hawk and MH-60 Seahawk programs are undergoing production and sustainment activities in multiple nations, including India, the Philippines, Australia and Greece.  

Consequently, Lockheed’s long-term growth expectation remains solid. This is further reflected in the Zacks Consensus Estimate for long-term (three-to-five years) earnings growth rate of 10.5%. 

Now let’s take a sneak peek at its near-term estimates to check if those mirror a similar growth story.

Near-term Estimates for LMT Stock

The Zacks Consensus Estimate for LMT’s 2025 and 2026 sales implies an improvement of 4.7% and 3.7%, respectively, year over year. 

However, its 2025 earnings estimates suggest a dismal performance. On the other hand, LMT’s 2026 earnings estimate calls for a rise of 9.1%.

The near-term bottom-line estimates for LMT have moved south over the past 60 days. This points to analysts’ declining confidence in the stock’s earnings generating prospects.  

LMT Trading at a Discount

In terms of valuation, LMT’s forward 12-month price-to-earnings (P/E) is 16.21X, a discount to its peer group’s average of 18.25X. This suggests that investors will be paying a lower price than the company's expected earnings growth compared to its peers.

Its industry peer, Embraer, is however trading at a premium to both LMT and the peer group average. ERJ is currently trading at a forward 12-month earnings of 26.92X.

Risks to Consider Before Choosing LMT

Despite strong long-term growth prospects, Lockheed faces key challenges stemming from industry-wide labor shortages. The 2024 “On the Horizon” Workforce Study by the Aerospace Industries Association and PwC highlights an average attrition rate of 13%, well above the national average of 3.8%, mainly due to rising retirements. 

This talent shortage poses risks of production delays and quality control issues, especially as aircraft manufacturers ramp up output post-pandemic. For major defense contractors like Lockheed, Boeing and Embraer, persistent staffing gaps could disrupt supply chains, affect delivery timelines, and hamper operational performance.

Moreover, LMT’s long-term debt-to-capital ratio is higher than the industry average (as one can see below). Such a high debt-to-capital ratio suggests that the company relies more heavily on debt financing compared to its industry, indicating a higher financial risk and a greater burden on cash flow due to interest payments.

How to Play LMT Stock?

To conclude, despite Lockheed’s discounted valuation and long-term growth catalysts, its recent stock underperformance, declining earnings estimates, elevated debt levels, and operational risks tied to labor shortages raise red flags. Given these concerns, investors may be better off staying on the sidelines for now until clearer signs of stability and momentum emerge.

The stock currently has a Zacks Rank #4 (Sell), which further supports our thesis.   

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 

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This article originally published on Zacks Investment Research (zacks.com).

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