Wall Street spent the first half of 2026 souring on Lockheed Martin (LMT), the Pentagon’s largest supplier, watching its stock slide as its order book kept swelling.
Fixed-price contracts and production delays had eaten into profits before, and investors bet they would again. On Tuesday, Sept. 8, UBS said that bet is about to go wrong.
Defense stocks rallied broadly at the start of the year as military spending plans rose and geopolitical tensions stayed elevated, Bloomberg reported, and Lockheed climbed to an all-time high near $692 in March. That made the reversal that followed even sharper for investors who had just piled in.
Lockheed posted first-quarter profit of $6.44 a share in April, badly missing estimates as cost overruns on the F-16 and C-130 programs squeezed margins, according to Reuters. The stock fell as much as 23% from its all-time high that month, The Motley Fool noted.
The story flipped in July. Lockheed’s second-quarter results beat Wall Street on revenue, earnings and cash flow, and the order backlog jumped to a record $230 billion, according to a Lockheed Martin press release. UBS now argues that investors still have not caught up to that shift.
The missile backlog Wall Street kept discounting
UBS upgraded Lockheed to Buy from Neutral this week and raised its price target to $674 from $581, implying about 26% upside from the stock’s Sept. 4 closing price of $524.48, according to Investing.com. Analyst Gavin Parsons expects revenue to grow at an annual rate near 9% through 2028, led by missiles.
That call rests heavily on two contracts most investors have not priced in. Lockheed’s missile business is working through a seven-year framework worth up to $35 billion for THAAD interceptors, plus a separate PAC-3 agreement that grew to roughly $59 billion this summer, according to Breaking Defense.
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Those deals matter because they are production contracts backed by a firm government demand signal, not the fixed-price development work that hurt Lockheed’s aeronautics unit in April.
Development programs carry engineering risk that can blow through cost estimates, while multiyear production orders mostly require scaling factories that work.
UBS is betting that the market still prices missile output as a riskier contract rather than a steadier one, and that distinction is the real basis for the upgrade.
UBS’s math bets on a widening earnings gap
UBS projects 2028 adjusted earnings of $39.34 a share, 12% above Wall Street consensus, according to Seeking Alpha.
It values Lockheed at roughly 11.8 times next-12-month EBITDA, a 15% discount to the S&P 500, the report said. UBS argues that this gap should narrow as the missile ramp shows up in results.
Free cash flow is expected to climb from $6.9 billion in 2025 to about $9.6 billion by 2030, even with a pension-related dip in 2027, the same note said.
The bank’s scenario range shows how much it rides on execution. A stronger outcome could push shares toward $870, while a weaker one implies a fair value near $452, according to Seeking Alpha.
- A 52-week range of $437 to $692 shows how far the stock has moved this year; shares traded at $536.15 on Wednesday, Sept. 9, according to Investing.com.
- A 23-year streak of consecutive dividend increases stands behind the stock, based on InvestingPro data cited by Investing.com.
- F-35 related work made up about 27% of Lockheed’s 2025 revenue, a segment growing slower than missiles, according to Jefferies.
Wall Street remains split on the stock
UBS’s optimism is not shared across the Street. LSEG data show that 13 of the 24 analysts covering Lockheed rate it a Hold, while only 10 assign Buy or Strong Buy ratings, according to CNBC.
Jefferies reiterated its Hold rating the same day UBS upgraded, keeping a $595 price target, according to Investing.com. The gap between the two banks looking at the same missile ramp shows how unresolved the fixed-price question still is for skeptics.
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The real test facing every defense stock
Lockheed’s whiplash year is a test case for the whole defense industry. Analysts warned in late 2025 that record backlogs would keep colliding with fixed-price losses at Boeing, RTX and Lockheed alike, according to the Motley Fool, and Lockheed’s April results looked like proof.
UBS’s bet is that Pentagon production contracts such as THAAD and PAC-3 behave differently than the legacy programs that caused those losses.
If Lockheed converts its backlog into cash as UBS expects, it becomes the template other defense primes are judged against. If it does not, the case for re-rating the whole sector gets harder to make.
Investors will get an early read when Lockheed reports third-quarter results in October.
UBS itself flagged what could derail the thesis first, including congressional budget delays and fresh cost overruns on the fixed-price programs still sitting in Lockheed’s portfolio, according to Seeking Alpha.
Related: Two defense stocks just got a multiyear vote of confidence
