This morning, Goldman Sachs analyst Noah Poponak upgraded Lockheed Martin to Buy saying it increasingly looks to have outgrowth differentiators in the Defense market. Separately, Bloomberg reported that the company's $15B sale of its THAAD missile system to Saudi Arabia may be at risk in the aftermath of the murder of journalist Jamal Khashoggi.

BUY LOCKHEED MARTIN: In a research note to investors, Goldman Sachs' Poponak upgraded Lockheed Martin to Buy from Neutral and added the shares to his firm's Conviction List. The analyst believes Lockheed increasingly looks to have outgrowth differentiators in an end-market he favors, namely Defense and sees margins expanding from current levels in every segment. Further, Poponak argued that free cash can convert at a high rate for a long time and said he sees upside to consensus estimates. The recent pullback in shares makes the stock's valuation more attractive, he added. Additionally, the analyst continues to expect higher future defense spending than the market discounts and now sees greater potential for outgrowth given developments in missile, missile defense, helicopters and space, in addition to remaining F-35 growth. Poponack told investors he also thinks Lockheed can beat current 2019/2020 cash flow guidance, potentially by a wide margin. The analyst raised his price target on the shares to $394 from $391.

SAUDI ARABIA DEAL UNCERTAINTY: Lockheed Martin's $15B sale of its THAAD missile system to Saudi Arabia may be at risk in the aftermath of the murder of journalist Jamal Khashoggi at the Saudi consulate in Turkey, according to Bloomberg. The pending Saudi deals for arms, logistics, and training includes sales started during President Barack Obama's administration, and only $14.5B of that involves signed "letters of offer and acceptance" that spell out final terms and prices. Citing the company's CEO Marillyn Hewson, the Washington Post said Lockheed would defer to the U.S. government's decisions regarding relations with the kingdom. "Most of these agreements that we have are government-to-government purchases, so anything that we do has to follow strictly the regulations of the U.S. government", she said in response to a question from Bernstein analyst Doug Harned during the company's earnings call yesterday. "Beyond that, we'll just work with the U.S. government as they're continuing their relationship with Saudi". 

PRICE ACTION: In morning trading, shares of Lockheed Martin have dropped over 2% to $313.91.