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Lockheed Martin could be an underrated defense stock in 2026, but it is not automatically a bargain. The company combines a record backlog, rising missile-defense production, resilient F-35 volumes, improving cash generation and higher full-year guidance. Against that, investors face heavy dependence on U.S. government spending, unresolved F-35 funding, and substantial losses on classified fixed-price programs. The practical conclusion is conditional: Lockheed Martin looks like a potentially attractive long-term defense compounder when the share price offers a clear margin of safety, not a stock to buy at any price.
What did Lockheed Martin report in the third quarter of 2026?
Lockheed Martin’s third-quarter results showed broad operating momentum. The company reported higher sales, earnings and cash generation, while its order backlog reached a record level.
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| Measure | Third quarter or period | What it indicates |
|---|---|---|
| Sales | $20.7 billion, up 11% year over year | Continued demand across aircraft, missiles and space programs |
| Net earnings | $1.8 billion, up 14% | Earnings growth exceeded sales growth |
| Diluted EPS | $7.97 | Per-share profitability for the quarter |
| Cash from operations | $3.4 billion | Strong conversion of accounting earnings into cash |
| Free cash flow | $3.0 billion | Cash available for dividends, investment and other capital allocation |
Chairman, President and Chief Executive Officer James D. Taiclet said: “We delivered $3 billion of free cash flow in the quarter, and increased our backlog to a record $292 billion, allowing us to raise our dividend for the 24th year in a row.”
Why is Lockheed Martin’s backlog important?
Ending backlog was $292.0 billion on September 27, 2026, 27% higher than the prior quarter. A multi-year PAC-3 MSE award accounted for $52.5 billion of that backlog, giving the company unusually strong visibility in missile defense.
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Backlog is not the same as near-term revenue. Delivery schedules, annual appropriations, contract modifications and production capacity determine when orders become sales and cash. Nevertheless, the size and composition of this backlog strengthen the long-term revenue base and reduce reliance on winning entirely new programs each year.
Which programs are driving Lockheed Martin’s growth?
For the first nine months of 2026, product-sales growth came from production ramps in several high-priority programs:
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| Program | Business significance |
|---|---|
| PAC-3 | Ground-based missile-defense interceptor production |
| THAAD | High-altitude missile-defense systems |
| GMLRS | Guided multiple-launch rocket systems |
| PrSM | Precision strike missile production |
| F-35 | Large-scale fighter production and sustainment |
| FBM | Fleet Ballistic Missile work |
| NGI | Next-generation missile-defense development |
Missiles and air defense are especially important to the current setup. The company’s Missiles and Fire Control segment increased sales 17% year over year in the first nine months, reflecting production increases rather than only price changes or acquisitions.
Is Lockheed Martin’s cash flow and dividend record improving?
Through the first nine months of 2026, operating cash flow was $6.893 billion and free cash flow was $5.625 billion. Management raised its full-year free-cash-flow outlook to approximately $7.8 billion to $8.0 billion. That guidance matters because defense-company earnings can be affected by contract estimates, while cash flow shows whether those earnings are being collected.
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Lockheed Martin also announced its 24th consecutive annual dividend increase. A long record of increases can appeal to income-focused investors, but the dividend should still be assessed against future free cash flow, debt needs and the possibility of program-related charges.
How concentrated is Lockheed Martin’s business?
Concentration is the main structural reason not to treat the stock as a low-risk industrial compounder. The 2025 Form 10-K reported that the F-35 program represented 27% of consolidated sales and that 72% of total sales came from the U.S. Government.
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A free scan shows the junk files, broken settings and background clutter dragging Windows down - then fixes them in one click.Free scan · Windows 10 & 11- F-35 dependence: A single program has an outsized effect on production volume, sustainment revenue and investor sentiment.
- Customer dependence: Federal budget decisions, appropriations timing and procurement priorities influence most of the company’s revenue.
- Political and schedule exposure: Changes in administration priorities or international orders can alter delivery timing even when long-term demand remains strong.
What execution risks could undermine the bullish case?
Lockheed Martin has disclosed losses on classified programs that deserve close attention. As of September 27, 2026, cumulative losses were approximately $1.8 billion on a classified Aeronautics program and $1.5 billion on a classified Missiles and Fire Control program. The company warned that additional losses could be material.
F-35 Lots 20 and higher also remained under negotiation. Costs had exceeded the authorization and funding currently available for Lot 20, creating a risk that future contract terms, margins or delivery schedules could be less favorable than investors expect.
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| Risk | Why it matters to shareholders | What to monitor |
|---|---|---|
| Fixed-price contract losses | Cost overruns can reduce profit and cash despite rising sales | Quarterly estimate changes and reserves |
| F-35 Lot 20 negotiations | Unresolved pricing and funding can affect a major revenue stream | Authorization, funding and negotiated contract terms |
| Classified-program uncertainty | Limited public detail makes forecasting difficult | Management disclosures about cumulative and incremental charges |
| Budget concentration | Federal procurement changes can move orders between periods | Appropriations and contract awards |
Is Lockheed Martin stock undervalued right now?
The available company releases and filings do not include a current share price or a verified forward valuation multiple. Therefore, it is not possible to make a defensible claim that LMT is cheap based on price-to-earnings or free-cash-flow yield alone.
Investors should obtain a current market quote and compare the price with forward EPS, expected free cash flow, dividend growth and the risk of further contract charges. A strong operating outlook can already be reflected in the share price; the stock becomes compelling only when the valuation leaves room for execution mistakes, slower backlog conversion or weaker F-35 economics.
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Use a valuation-and-execution framework rather than relying on the backlog headline alone.
| Supports a purchase | Calls for patience or a smaller position |
|---|---|
| Record backlog with a large PAC-3 MSE component | Share price does not provide a clear margin of safety |
| Rising missile-defense production and 17% MFC sales growth | Additional losses on classified fixed-price programs |
| Higher 2026 free-cash-flow guidance | F-35 Lot 20 funding and pricing remain unresolved |
| Long dividend-growth record | 72% of sales depend on the U.S. Government |
For a long-term investor, the most attractive entry would combine durable backlog, improving cash conversion and a valuation that discounts at least some program and budget risk. If the market price assumes flawless execution, waiting for a better entry or building a position gradually may be more rational than making an all-at-once purchase.
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How does Lockheed Martin compare with other defense stocks?
Peer comparisons should focus on business quality and price together. The most useful questions are:
- How large is the backlog, and how much is funded and scheduled?
- Is growth coming from missile defense, aircraft, space, services or acquisitions?
- Are margins and free-cash-flow conversion improving organically?
- How concentrated are sales by customer and program?
- How much exposure is there to fixed-price contracts and classified work?
- What is the record for dividends and share repurchases?
- How much balance-sheet flexibility exists if a program produces losses?
- What valuation is being paid for forward earnings and free cash flow?
Lockheed Martin scores well on backlog scale, missile-defense exposure, cash generation and dividend history. Its weaker areas are customer concentration and the disclosed execution problems, so the relative attractiveness depends on how competing contractors are valued and how reliably they convert orders into cash.
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Lockheed Martin’s 2026 operating picture is stronger than its reputation as a mature defense contractor might suggest. Missile-defense ramps, F-35 volume, record backlog and improved cash guidance support the bullish case. However, concentrated U.S. government exposure, F-35 negotiations and billions of dollars in classified-program losses prevent an unconditional buy recommendation. LMT is best viewed as a quality defense compounder that may be underrated when purchased at a valuation with a genuine margin of safety.
Frequently Asked Questions
Does a large Lockheed Martin backlog guarantee next year’s revenue?
No. Backlog is subject to appropriations, contract changes, customer schedules and the company’s ability to deliver. A high backlog improves visibility, but the timing and profitability of that work can still change.
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What should a new investor read before buying LMT shares?
Start with the latest 10-Q for contract estimates, cash flow and program charges, then review the 10-K for customer and program concentration. Read the earnings release alongside those filings so guidance can be checked against reported results.
Why can Lockheed Martin’s stock fall even when defense budgets rise?
Higher budgets do not automatically produce higher shareholder returns. Investors can react negatively to cost overruns, delayed awards, unfavorable fixed-price terms or a valuation that already assumes strong growth.
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How often should the investment thesis be refreshed?
Review it after each quarterly filing and whenever a major authorization, contract award or program-cost update is announced. The key tests are backlog conversion, free-cash-flow delivery and changes in disclosed contract losses.
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