Lockheed Martin Corp. LMT has recently launched a scalable, layered defense system to counter evolving small Unmanned Aerial System (“UAS”) threats. In a recent company-funded field demonstration, the system successfully detected, tracked, and mitigated both individual drones and swarms.

This modular, open-architecture solution integrates AI-driven detection and tracking software, low-cost sensors, and advanced effectors with combat-proven command and control (C2) technology. Designed for rapid deployment and seamless integration, it enhances real-time threat response.

This successful demonstration, highlighting Lockheed’s commitment to delivering effective, scalable Counter-UAS solutions, might attract investors interested in defense stocks to add LMT to their portfolio. However, before making any hasty decision, let’s delve into the company’s year-to-date performance, growth prospects as well as risks (if any) to investing in the same.

LMT Stock Outperforms Industry & Sector, Lags S&P 500

Shares of Lockheed have surged 2.6% in the past year, outperforming the Zacks aerospace-defense industry’s decline of 5% as well as the broader Zacks Aerospace sector’s growth of 2.2%. LMT, however, lagged the S&P 500’s return of 18.3% in the past year.

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A similar stellar performance can be witnessed in the share price return of other industry players like Embraer ERJ, RTX Corp. RTX and Leidos Holdings LDOS, which have witnessed a surge of 126.3%, 40.8% and 2.4%, respectively, over the past year.

What is Driving LMT Stock Up?

Solid order flow for its varied products — ranging from agile fighter aircraft and helicopters to littoral combat ships and space products — from the Pentagon as well as the U.S. allies has always played the role of a key catalyst in Lockheed’s growth story. Such order flows culminate into a strong backlog count for the company, thereby bolstering its revenue prospects. This, in turn, might have been reflected in LMT's recent share price hike. 

Notably, Lockheed’s backlog as of Dec. 31, 2024, totaled $176 billion, reflecting an increase from the previous quarter’s level of $165.69 billion. The company expects to recognize approximately 35% of its backlog over the next 12 months and approximately 60% over the next 24 months.

Lockheed’s stable financial position must have also been attracting investors. Notably, its cash and cash equivalents at the end of 2024 totaled $2.48 billion, while its current debt was $0.64 billion.  So, it would be safe to conclude that the stock holds a strong solvency position, at least in the near term. 

Will LMT Continue With Its Winning Streak?

Lockheed continues to benefit from strong and stable growth opportunities, driven by the increasing complexity of global security threats. As geopolitical tensions and security challenges intensify, both developed and developing nations are expanding their defense budget to enhance military capabilities. This sustained investment in advanced defense technologies is fueling consistent demand for Lockheed’s solutions, reinforcing its revenue and earnings potential. With a robust portfolio spanning aerospace, missile defense, and emerging technologies like AI-driven warfare systems, LMT remains well-positioned to capitalize on long-term defense spending trends. As governments prioritize national security, the company’s strategic contracts and innovation-driven approach ensure steady growth and resilience in the evolving defense landscape.

In line with this, the consensus estimate for LMT’s long-term (three-to-five years) earnings growth is pegged at a solid 7.8%.

Let’s take a quick sneak peek at its near-term earnings and sales estimates to understand how LMT may perform over the next few quarters.

LMT’s Estimates Send Mixed Signals

The Zacks Consensus Estimate for 2025 and 2026 sales suggests an improvement of 4.6% and 4.4%, respectively, year over year. LMT’s 2025 earnings estimate indicates a year-over-year deterioration, while that for 2026 implies an improvement.

However, the Zacks Consensus Estimates for first-quarter and full-year 2025 earnings per share have moved down 3.3% and 2.1%, respectively, over the past 60 days. This indicates analysts’ declining confidence in the stock.

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Image Source: Zacks Investment Research

Headwinds to Consider Before Choosing LMT

Despite its strong position as a leading defense contractor, Lockheed faces key industry challenges that investors should consider. A significant concern is the shortage of skilled labor, exacerbated by an aging workforce. As aircraft manufacturers ramp up production, labor constraints could impact Lockheed’s aerospace operations.

Additionally, the company’s Canadian Maritime Helicopter Program (“CMHP”) under its Rotary and Missions Systems segment has encountered performance setbacks, including delays in aircraft deliveries. The Royal Canadian Air Force’s lower-than-expected flight hours have further affected program revenues and cost recovery. As of Dec. 31, 2024, Lockheed reported cumulative losses of approximately $100 million on CMHP, highlighting operational risks that could impact future profitability.

LMT Stock’s Poor Debt-to-Capital Ratio

As one can see below, LMT’s total debt-to-capital ratio is much higher than that of its industry. This indicates that the company might not be able to make enough money to repay its debts.

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Should You Buy LMT Stock Now?

Investors interested in Lockheed should wait for a better entry point, considering its poor debt-to-capital ratio and downward revision in its near-term earnings estimates. 

However, those who already own this Zacks Rank #3 (Hold) company’s shares may stay invested as its financial stability, positive share price performance over the past year and solid backlog count offer solid growth prospects in the long run.  

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

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report

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

Leidos Holdings, Inc. (LDOS) : Free Stock Analysis Report

RTX Corporation (RTX) : Free Stock Analysis Report

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

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