Tuesday, December 26, 2006

Calls of Note Part 4

- Goldman Sachs has added Lockheed Martin (NYSE:LMT) to the Americas Conviction Buy List as they see 11% upside potential to the stock relative to their $102 six-month price target, which was derived using a blended average of adjusted earnings multiples and a DCF. Firm's conviction on LMT is based on: 1) belief that LMT will benefit in 2007 from share gained in 2006, 2) a 14.8% ROIC that's among the highest in the peer group, but trading multiples that are in-line with the defense peer group, and 3) belief that LMT's share price suffers from some investor skepticism over potential program cuts in the FY2008 budget they think are less likely to occur.

Catalyst: In 2006, LMT was a share gain story benefiting from wins on technical service contracts, key intelligence programs, and programs in adjacent markets. In 2007, the firm thinks LMT will see the benefit from: share gained in 2006, lower risk on key production programs, and the deployment of its $7+/share free cash flow. The FY2008 budget release in early Feb is the next catalyst, which the firm thinks will be favorable to LMT programs. Looking further ahead, LMT's opportunity pipeline includes: IWN ($10bn, mid-07), GPS-3 satellite ($5bn, mid-07 decision), and various ID/IQ contracts.

Notablecalls: Not actionable but good to know category. Really.

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