Defense Analyst Boosts Ratings for Lockheed, Northrop

A Drexel Hamilton LLC analyst who has maintained a bearish view of the defense industry for more than a year raised his ratings on three top weapons companies.

Richard Whittington upgraded F-35 jet maker Lockheed Martin Corp. (LMT), along with Northrop Grumman Corp. (NOC) and General Dynamics Corp. (GD), to hold from sell. He had recommended selling shares of all three contractors since October 2011.

“Our model has assumed steep major program reductions, even outright cancellation of some, but looks to be proving overly pessimistic,” Whittington said today in a note to clients on Falls Church, Virginia-based Northrop, the fifth- largest Pentagon contractor.

Northrop rose 1 percent to $72.45 today in New York trading, the highest since March 2008. Bethesda, Maryland-based Lockheed advanced 1.4 percent to $97.30, the highest since October 2008. Falls Church, Virginia-based General Dynamics rose 2.7 percent.

The upgrades followed President Barack Obama’s release of a budget proposal calling on Congress to lift automatic spending cuts that would slice $500 billion from defense programs over nine years.

F-35 Jet

The across-the-board reductions, known as sequestration, began March 1 and emerged from a deal between Obama and congressional Republicans to create a penalty for failing to agree on a deficit-reduction strategy.

Under the president’s budget, top Pentagon contractor Lockheed would benefit from increased spending on its troubled F-35 jet and Littoral Combat Ship programs as well as orders for additional C-130 transport aircraft.

“Already superbly performing Lockheed looks to gain a prospective long lease on life from an artfully constructed federal budget,” Whittington, who is based in New York, wrote today.

An index of the top 10 Defense Department contractors has gained 12.1 percent this year, while the Standard & Poor’s 500 Index increased 11.7 percent.

The defense stocks have outperformed the broader market since the automatic cuts took effect, advancing 9.6 percent since March 1, while the S&P 500 is up 5 percent.

To contact the reporter on this story: Nick Taborek in Washington at ntaborek@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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