On September 18, the Department of War (DoW) awarded Lockheed Martin Corporation (NYSE:LMT) an $871 million modification to an existing F-35 Lightning II contract.
The award lifts the ceiling to provide additional capacity for support equipment under the site activation and sustainment efforts.
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The contract will include initial sustainment supplies and services required to establish and activate F-35 operational sites that are both land-based and at-sea.
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Work on the contract will primarily be performed in El Segundo, California, with some parts executed in Fort Worth, Texas. Completion is expected in February 2031.
The contract will support the Air Force, Navy, Marine Corps, Cooperative Program Partners, and Foreign Military Sales customers.
Bull Case
The contract reflects the Pentagon’s deep commitment to expanding and sustaining the fifth-generation fighter’s fleet, despite questions that sometimes arise over the F-35’s cost and relevance.
It further highlights the durability of the F-35 sustainment revenue stream. While new production orders often depend on budgets, sustainment spending on the delivered fleet continues to grow as aircraft age and expand to new bases.
As the Air Force and Navy plan to increase F-35 purchases through 2031, that will further increase the installed base for Lockheed Martin Corporation to support.
The recent contract runs through 2031. This, coupled with plans to boost the F-35 fleet, will ensure the jet’s ecosystem remains a cash flow engine for the defense contractor for the foreseeable future. This will also shield the company from procurement cuts in any given year.
Bear Case
The terms of the contract say that no funds will be obligated at the time of the award. Money will only flow in as individual orders are issued. Therefore, the $871 million is a ceiling figure, not guaranteed revenue. Viewed in isolation, the award is a low-single-digit percentage of the company’s 2025 annual sales figure of $75 billion, and considerably less when averaged over the five years the contract covers.
Skeptics also argue that the company’s fortunes are closely tied to the F-35 program, which has often been questioned over its cost and relevance, especially given the scrutiny surrounding defense budgets. Any renewed pressure could impact market sentiment.
Last year, the Air Force slashed its request to Congress for F-35s by half to 24 planes for fiscal 2026, down from initial forecasts of 48.
Hedge Fund Sentiment
According to Insider Monkey, hedge fund sentiment in the stock declined 10% sequentially during the second quarter to 75 funds, down from 83 funds at the end of Q1. AQR Capital Management is the largest stakeholder in the company with shares worth $701 million as of June 30. This is despite the fund trimming its stake by 23% during Q2.
Citadel Investment Group was second with holdings of $342 million, while Holocene Advisors had the third-biggest stake valued at nearly $291 million.
Closing Take
The $871 million modification reinforces that the U.S. is doubling down to keep its F-35 fleet operational and expanding the jet’s footprint. While a positive development for Lockheed Martin Corporation, this is more of a continuation of a trend, rather than a catalyst.
That said, the stock’s valuation offers an attractive entry point for investors. It trades at a forward price-to-earnings ratio of 17.49, as of September 18. This is below the sector median of 19.31 and peers like NOC, GD, and RTX. Lockheed’s fundamentals also remain strong, considering its raised guidance for the remainder of 2026, a record backlog of $230 billion, and consistent government demand.
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