Morgan Stanley Just Turned Bullish on Lockheed Martin After a Big Pentagon Deal
A massive Pentagon framework agreement sent Lockheed Martin shares surging and triggered a rare Morgan Stanley upgrade, but whether that momentum holds depends entirely on a congressional decision that has not yet been made.
Lockheed Martin (NYSE:LMT | LMT Price Prediction) closed at $635.33 on October 26, 2026, up 5.16%. The gain came after Morgan Stanley (NYSE:MS) analyst Kristine Liwag upgraded the stock to Overweight from Equal-weight and raised her price target to $835 from $690.
Her case rests on the F-35 framework agreement that the Department of War and Lockheed announced on October 22. She wrote that it “effectively removes this risk from the stock”. The risk she meant is investor worry that the F-35, which accounts for 20% to 30% of revenue, could be cut to pay for missiles.
LMT stock had already gained 15.89% from October 19 through October 26, so the central issue for investors is how much of that relief is already priced in.
What the F-35 Framework Commits and What It Leaves to Congress
The framework is a nonbinding outline that comes before any signed contract or jet order. It covers 850 U.S. F-35s over 10 years, plus spares, modification kits, maintenance, and international orders across Lots 21 through 30, at 156 aircraft a year, including foreign jets.
It depends on multiyear authority and appropriations from Congress, which the release says could come “in the coming months.” Only then would pricing, terms and schedules be set in a formal award. No dollar value was disclosed.
On the earnings call, management described a fixed-price model with an inflation escalator, cash-flow neutrality during the investment period and recovery provisions if volumes are later cut. Lot 20 is not included in 2026 guidance, and its costs have already exceeded current contractual authorization.
Why Morgan Stanley Sees Less Downside
Liwag argued that “current pricing levels do not adequately reflect the significant derisking” and cited a 4.0x risk/reward ratio, which is her estimate of potential upside relative to potential downside.
The quarter supports her case, as sales rose 11% to $20.7 billion, and diluted EPS of $7.97 beat the $7.52 consensus. Lockheed lifted its 2026 EPS outlook to $30.35 to $30.75.
The signed piece of this story is the $52.5 billion multiyear PAC-3 MSE interceptor award, which helped push backlog to a record $292.0 billion. Moreover, missiles and Fire Control sales rose 24% to $4.50 billion.
Morgan Stanley expects mid-teens segment growth over 5 years and pointed to partnerships with newer defense-tech firms such as Hadrian, which is private. Free cash flow slipped to $3.0 billion from $3.3 billion, but the full-year outlook rose to $7.8 billion to $8.0 billion, which covers the $3.60 quarterly dividend raised on October 9.
How Much of the Re-Rating Is Priced In
The $835 target implied 38% upside from Friday’s $604.18 close, and about 31.4% from Monday’s close. The consensus target is $645.48 from 23 analysts. Other firms recently set targets of $600, $620, and $692.
The bulls are assuming Congress funds the framework on good terms. On the other hand, the conservative camp is assuming pricing gets pressured or funding slips. LMT sits about 8.2% below its $692.00 52-week high.
What Would Confirm or Undercut the F-35 Upgrade
Lockheed’s strongest support comes from its signed missile backlog and 24 straight annual dividend increases. Morgan Stanley’s F-35 thesis counts as upside on top of that, because the framework is still only a statement of intent until Congress acts.
As a check, if Congress has not granted multiyear authority by the time Lockheed reports fourth-quarter results, and the stock falls back below the $589.91 close from October 22, the market will have judged the framework premature. A signed Lot 20 contract in 2026 would point the other way.
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Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
