This High-Quality Defense Stock Is on Sale—Should You Buy the Dip?

After bidding up Lockheed Martin to new heights leading up to the Iran war, investors seem to have lost their appetite for the stock. True, the defense bellwether’s first-quarter results revealed a slower-than-expected start to 2026; in fact, we reduced our fair value estimate for the stock to $640 from $660 after earnings. But we think the pullback has provided investors with an opportunity to buy the stock of this wide-moat defense giant at an attractive discount to what we think it’s worth. Lockheed Martin is one of Morningstar Chief US Market Strategist Dave Sekera’s stock picks in the latest episode of The Morning Filter podcast.

Biggest isn’t always best, but Lockheed Martin does benefit from the sheer scale of its tens of billions of dollars of defense contracts that provide defined decadeslong revenue and profit streams. We think Lockheed’s exposure to the F-35 program, hypersonic missiles, and the militarization of space aligns it well with areas of spending prioritized in the US defense budget. In the current environment, the constraint on the defense sector’s opportunity is not access to defense spending or the size of budgets, but rather the ability to deploy enough skilled employees (often requiring security clearance) and specialized components and materials (that lately have been in short supply) to execute the programs on time and on budget.

Key Morningstar Metrics for Lockheed Martin

• Fair Value Estimate
  : $640
• Star Rating
  : 4 Stars
• Economic Moat Rating
  : Wide
• Uncertainty Rating
  : Medium

Economic Moat Rating

Wide moats are prevalent in the defense business. In our view, intangible assets ensure that incumbent defense firms are the only companies capable of servicing the military’s large need to purchase arms, which manifests as a material barrier to entry. The second major intangible asset for defense companies is the contract structure, which allows excess return generation. Switching costs for military customers are generally predicated on the mission-criticality of products, extended product cycles, a lack of viable alternative products or suppliers, and the substantial time investment or risk involved in switching suppliers.

Read more about Lockheed Martin’s moat rating.

Fair Value Estimate for Lockheed Stock

Our fair value estimate is $640 per share, which implies a price/2026 estimated earnings multiple of 21 times and an enterprise value/2026 EBITDA multiple of 14.4. We see Lockheed’s consolidated revenue continuing to grow at low-single-digit rates in 2026 and beyond as increased defense spending on newer programs flows through to the top line, muted by maturing programs like the F-35. Due to peaking F-35 deliveries, growing F-35 maintenance revenue, and hypersonic missile development, we see Lockheed’s operating margin approaching 12%. We think a below-average cost of equity of 7.7% and a weighted average cost of capital of 7.4% are justified for this steady business.

Read more about Lockheed Martin’s fair value estimate.

Risk and Uncertainty

In 2025, 28% of Lockheed’s sales were to international customers, all subject to approval from the US government. This presents geopolitical risk if alliances break down or the government decides against sharing a particular item or technology. The risk always remains that defense budgets get caught up in political wrangling. Lockheed also faces execution risk related to its contracts. Supply chain issues and production challenges could prevent it from meeting deadlines or other contractual obligations, affecting costs and straining its customer relationships.

Read more about Lockheed Martin’s risk and uncertainty.

Lockheed Bulls Say

• Lockheed’s prime contractor role on the F-35, the largest weapon program in history, should deliver stable revenue for decades through procurement and maintenance.
• Geopolitical tensions have increased considerably due to the Russia-Ukraine war and escalating conflict in the Middle East. We expect the US will increase defense spending to deter further conflict.
• Defense prime contracting is an acyclical business, which could offer some protection if the US enters a recession.

Lockheed Bears Say

• Lockheed depends on US military funding for its sales, which is an inherently political and thus uncertain process.
• There is a risk that upstarts like SpaceX or Anduril will threaten incumbents’ oligopoly in space contracts or autonomous aircraft.
• Lockheed continues to face operational execution risk concerning the F-35 program. While costs have been managed recently, negotiations with the Defense Department over future lots have dragged out and may imperil funding.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of May 5, 2026, close unless otherwise noted.