Toward the end of the week that ended on April 25, I covered a piece on Lockheed Martin CEO Jim Taiclet, calling the current defense environment a “golden opportunity,” and a rare moment of unguarded enthusiasm from the leader of the world’s largest defense contractor. The market, apparently, needed more convincing.
Lockheed Martin (LMT) shares fell 4.6% after its first-quarter 2026 earnings report on Thursday, April 23, 2026, significantly underperforming the S&P 500, which declined just 0.4% same day.
The business wasn’t broken. The full-year outlook was reaffirmed. But what the numbers revealed underneath the headline figures gave investors pause, and Bank of America enough reason to issue a pointed reset on the stock.
BofA Global Research reiterated a Neutral rating on LMT on April 24, cutting its price objective to $600 from $660. The bank didn’t dispute Taiclet’s long-term vision.
No. It simply said the burden of proof now falls squarely on the second half of 2026. And that the path between here and the munitions ramp-up everyone is waiting for isn’t as clean as the bull case suggests.
Why Bank of America cut its Lockheed Martin price objective
BofA’s note landed with a phrase that frames the entire thesis: “between a classified rock and a generational demand opportunity.”
That tension is the heart of the bank’s Neutral stance. On one side, Lockheed Martin sits at the center of the most significant defense spending cycle in a generation.
Missiles, missile defense, hypersonics, and classified programs, all seeing accelerating demand driven by the Iran conflict and the Trump administration’s record $1.5 trillion Pentagon budget request, according to the U.S. Department of Defense.
Related: Lockheed Martin CEO sends strong 2-word message on Middle East
On the other side, the company’s near-term financial visibility is being clouded by classified program execution risk and a cash flow profile that BofA sees as increasingly pressured.
BofA lowered its price objective to $600 from $660, based on a 13x EV/EBITDA multiple applied to its 2027 estimates. That equated to down from 14 times previously, according to BofA’s research note. The multiple compression reflects lower overall estimates, sector de-rating, and what the bank describes as a lack of visibility on classified programs, creating lumpiness between now and the anticipated munitions ramp-up.
BofA’s revised LMT stock estimates:
- 2026 EPS: $29.90 (down from $30.05)
- 2027 EPS: $33.15 (down from $33.50)
- 2028 EPS: $37.75 (down from $37.95)
- 2026 free cash flow: $6.49 billion (down from $6.70 billion)
- 2027 free cash flow: $7.44 billion (down from $8.08 billion)
- 2028 free cash flow: $7.47 billion (down from $7.80 billion)
Source: Bank of America Global Research Report
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BofA flags Lockheed Martin capex, classified risks
Take a moment to think about this. The first-quarter miss wasn’t driven by the business lines investors can see clearly. It was driven by the ones they can’t.
Management attributed the Q1 shortfall to tough year-over-year comparisons and timing issues expected to be resolved by year-end, according to BofA’s note. The bank accepts that explanation, but flags cash as the most vulnerable line item heading into the rest of 2026.
Classified programs are expected to burn $500 to $700 million in cash this year, according to BofA’s analysis. Capital expenditure is rising by $1 billion year over year to approximately $2.7 billion in 2026, according to the firm.
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Both of those figures are pulling free cash flow lower. And they sit against a backdrop where Lockheed Martin’s cash from operations in Q1 came in at just $220 million, with free cash flow of $291 million, according to the company’s earnings release.
Lockheed Martin’s free cash flow use of $291 million for Q1 2026 was driven by working capital timing and $511 million in capital expenditures. This was a significant decrease from the $955 million free cash flow generated in Q1 2025. Despite the negative Q1 cash flow, the company reiterated its 2026 full-year free cash flow guidance of $6.5B-$6.8B, according to LMT’s earnings release.
The bank is also watching Space and Aeronautics margins, which it has revised lower, the primary driver of the EPS estimate cuts. No additional charges were taken in the quarter, according to BofA, but the visibility problem from classified programs remains unresolved.
Missiles and Fire Control remains Lockheed Martin’s brightest near-term catalyst
Bank of America’s caution on Lockheed Martin isn’t uniform across the business. The bank remains notably bullish on the company’s Missiles and Fire Control segment – and with good reason.
Demand across MFC programs is growing, volumes are increasing, and the missile framework agreements signed with the Department of War during the quarter represent meaningful progress on both production scale and contract protection, according to BofA’s note.
Related: Trump’s $2.2T proposed defense budget boosts Lockheed Martin’s outlook
Lockheed Martin is actively spooling up its supply chain, and new contract protections, similar to the “recovery element” Taiclet described on the earnings call, are being added to missile agreements.
The medium-term picture for Missiles & Fire Controls (MFC) is compelling. BofA notes more than a two-times increase in fiscal year 2027 requested procurement funding for major programs tied to Lockheed Martin. That’s a pipeline that isn’t yet showing up in current guidance but represents genuine upside as contracts are finalized and appropriations flow through.
Related: Morgan Stanley has a stark message on Lockheed Martin stock
“That said, we do see significant upside opportunities for LMT in the medium-term given their missile exposure and the >2x in the FY27 requested procurement funding for major programs tagged to LMT,” BofA said in their Global Research report.
The bank’s core argument is that this upside is “well understood” by the market. Meaning it’s already partially priced in, limiting near-term stock appreciation until execution proof points arrive.
What BofA’s Neutral call means for you
If you are tracking LMT against a record defense budget, this is for you. Lockheed Martin’s stock has delivered a modest 13% one-year return, well below the S&P 500’s 30.64% gain over the same period, according to Yahoo Finance.
Year to date, Lockheed Martin is up 6.72%, slightly ahead of the S&P 500 at 4.67%. Over longer periods, the stock remains positive, with returns of 15% over three years and 55% over five years, though it trails the S&P 500, which has gained 73% and 71% over the same periods.
BofA’s message isn’t bearish on the long-term story. It’s a timing call, acknowledging that the generational demand opportunity Taiclet described is real, while arguing the stock needs cleaner execution proof before it deserves a higher multiple. The second half of 2026 is when that proof is due.
Related: 114-year-old defense stock offers a $3 billion dividend payout in 2026
