Lockheed Martin stumbles but outlook for other defense contractors is good

An analyst downgraded shares of Lockheed Martin Corp. on Wednesday, citing its weak earnings outlook for next year amid concerns about possible delays in a key fighter-jet program. In a client note, Morgan Keegan analyst Brian Ruttenbur said, “As a result of the much weaker than expected outlook for Lockheed Martin in 2010 and our concerns that the company may continue to have weak margins over the next several years — particularly if any delays occur in the acceleration of the F-35 program — we see significantly less upside to the shares in the near term.” Ruttenbur cut his rating on Lockheed, the nation’s largest military contractor, to “Market Perform” from “Outperform.”

Forbes reports that The Bethesda, Maryland-based company issued weak 2010 earnings guidance, as had been predicted by Wall Street in recent weeks. It also warned that sales of fighter jets may dwindle and rising pension costs will crimp profits.

Defense contractors have been under increasing pressure from the U.S. government to curb costs and improve performance of often-expensive programs.

Ruttenbur, who focused his comments on Lockheed, said his outlook for the broader industry has not changed, with low to mid-single digit revenue growth, greater strength in intelligence, surveillance and reconnaissance systems, and support for ground forces as the war in Afghanistan ramps up.

Ruttenbur said he is optimistic about the outlook for other military contractors such as L-3 Communications Holdings, Raytheon Co., and General Dynamics Corp.

He said he believes L-3 Communications and Raytheon are “well-positioned” on intelligence, surveillance, and reconnaissance equipment. L-3 Communications benefits from strong maintenance and training capabilities, while Raytheon has a large international presence and General Dynamics has a greater focus on ground combat, he said.