Morgan Stanley reiterated its Equalweight rating and $675 price target on Lockheed Martin (LMT) following the company’s announcement of a new framework agreement with the War Department to quadruple production of the precision strike missile.
LMT shares were trading at $621.73 at the time of the note, up 27% over the past six months. The $675 target implies approximately 8.5% upside from that level. Morgan Stanley described the deal as consistent and complementary to Lockheed’s broader munitions acceleration strategy.
Lockheed Martin and the Department of Defense announced the agreement on March 25. It builds on a previous $4.94 billion contract awarded by the US military last year and together the two actions will quadruple PrSM’s production capacity, from approximately 400 to 1,600 units per year.
The agreement also establishes the possibility of negotiating a multi-year contract of up to seven years, subject to authorization by Congress. That structure gives Lockheed and its subcontractors the long-term demand signal needed to invest in factory expansion and automation.
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“Lockheed Martin delivers the advanced precision-fire capabilities the warfighter needs, including the precision strike missile, which expands deep strike capability,” said Lockheed Martin Chairman, President and CEO Jim Taiclet. “We are working closely with the War Department and the US military to build the Freedom Arsenal.”
Michael Duffey, undersecretary of Defense for acquisition and sustainment, added: “By allowing industry to invest in factories, we are building a decisive and lasting advantage for our warfighters to outperform any potential adversary.”
Morgan Stanley noted that the PrSM deal is part of a broader pattern of multi-year agreements between the Pentagon and Lockheed that are changing the funding environment for the company’s missile programs.
The company had previously noted similar deals: a separate framework to triple production of MSE PAC-3 interceptors and another to quadruple production capacity of THAAD interceptors. Taken together, Morgan Stanley said these deals indicate “structurally greater” demand for War Department missile systems, while improving annual funding and production visibility.
The bank sees two specific benefits for Lockheed in this environment. First, greater financing certainty allows the company to invest in facilities, supply chains and workforce without the risk of sudden budget cuts. Second, higher production rates create the potential for margin expansion as fixed costs are spread over higher volumes.