Shares of Lockheed Martin Corp. LMT have plunged 15.9% in the past six months, underperforming the Zacks Aerospace-Defense industry’s growth of 8.5% and the broader Zacks Aerospace sector’s rise of 6.1%. The stock has also lagged the S&P 500’s return of 0.1% during the same period.Zacks Investment Research

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On the contrary, a positive share price performance has been delivered by other aerospace manufacturers, such as The Boeing Company BA and Embraer ERJ, whose shares have surged 46% and 31%, respectively, in the past six months.

With the LMT stock sinking recently, individuals may rush to divest it from their portfolio. However, before making any hasty decision, it would be prudent to take a look at the reasons behind the surge, the stock’s growth prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.

What Caused LMT Stock’s Downfall?

In March 2025, Lockheed lost the contract for building the U.S. Air Force's next-generation fighter jet to Boeing. This might have been one of the primary causes behind investors losing confidence in this stock lately, which, in turn, got duly reflected in LMT’s share price movement at the bourses.

Meanwhile, the stock’s rating suffered quite a few downgrades from analysts in recent times, which might have further laid pressure on its share price performance at the bourses. Evidently, soon after Lockheed lost out to Boeing on the U.S. Air Force's Next Generation Air Dominance program, analysts from Bank of America (BofA) and Melius Research lowered their ratings on LMT. Royal Bank of Canada also downgraded Lockheed’s rating around the end of March. Earlier, in January 2025, Citigroup reduced its price target for Lockheed shares.

Will LMT Rebound?

The global defense industry is poised for steady growth amid rising geopolitical tensions, which continue to drive up defense budgets worldwide, particularly in areas like military aviation, as nations prioritize aerial dominance. In line with this trend, the Mordor Intelligence firm projects a 3.7% CAGR for the global fighter aircraft market between 2025 and 2030.

This creates a favorable growth opportunity for key defense contractors such as Lockheed, Boeing and Embraer. Lockheed’s F-35 remains the most advanced, survivable, and connected fighter jet currently in production. Looking ahead, the production of F-35 jets is expected to continue for many years, given the U.S. government's current inventory target of 2,470 aircraft for the Air Force, Marine Corps and Navy by 2040 and the company expecting the global fleet to reach more than 3,500. This sustained production target is expected to enhance LMT’s long-term revenue and earnings prospects and reinforce its leadership in combat aircraft manufacturing.

Story Continues

In line with this, the consensus estimate for LMT’s long-term (three-to-five years) earnings growth rate is pegged at 10.5%.

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

Estimates for LMT Stock

The Zacks Consensus Estimate for LMT’s 2025 and 2026 sales implies an improvement of 4.6% and 3.9%, respectively, year over year.

However, its near-term earnings estimates suggest a dismal performance. Nevertheless, LMT’s 2026 earnings estimate calls for a rise of 9.4%.

On the other hand, the near-term bottom-line estimates suggest downward movement over the past 60 days. This indicates analysts’ declining confidence in the stock’s near-term earnings generation capabilities. However, the consensus estimate for LMT’s 2026 earnings suggests an upward movement.Zacks Investment Research

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Headwinds to Consider Before Choosing LMT

Despite being a prominent defense contractor, Lockheed faces some notable challenges and one should consider them before adding this stock to their portfolio.  Labor shortages remain such a significant challenge for aerospace-defense stocks like Lockheed, Boeing and Embraer.

According to the 2024 "On the Horizon" Workforce Study by the Aerospace Industries Association (AIA) and PwC, the sector continues to face elevated turnover rates, further strained by increasing retirements. Notably, AIA member organizations have reported an attrition rate of 13% over the past two years, well above the national average of 3.8%. This higher-than-average turnover may result in production delays and quality concerns, as experienced personnel exit the workforce.

As aircraft manufacturers scale up production amid a post-pandemic recovery, staffing gaps threaten to disrupt supply chains and project timelines. For major players like Lockheed, these labor challenges could hinder their ability to meet delivery schedules, ultimately affecting operational performance and exerting downward pressure on stock performance if production goals are missed.

Moreover, LMT’s debt-to-capital ratio of 73.63 is higher than the industry average of 48.60. 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.Zacks Investment Research

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What Should an Investor Do?

To conclude, investors interested in Lockheed should wait for a better entry point, considering its higher debt-to-capital ratio, the downward revision in its near-term earnings estimate and dismal performance at the bourses over the past six months.

However, those who already own this Zacks Rank #3 (Hold) stock may choose to stay invested, as the company’s upbeat sales estimates and growing global fighter jet market prospects offer solid long-term growth opportunities.

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

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The Boeing Company (BA):Free Stock Analysis Report

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Embraer-Empresa Brasileira de Aeronautica (ERJ):Free Stock Analysis Report

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

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