U.S. Markets open in 8 hrs 12 mins

Lockheed Martin LMT- 2019 Top Picks' Mid-Year Update

John Eade, an analyst for Argus Research, selected Lockheed Martin Corp. (LMT) as his favorite investment idea for 2019. The stock has since risen 38%. Here's his latest update on this leading player in the defense sector.

Lockheed Martin Corp. (LMT) has consistently surprised the Street in recent years, regardless of whether defense spending is rising or falling. The stock rose 48% in the first half of 2019.

More from John Eade: An Argus Research Portfolio for Sustainable Impact Stocks

In recent quarters, government spending on defense has again started to accelerate, which should boost earnings. We have a favorable view of the company's focus on international revenue diversification (now 25% of sales), and expect increased geopolitical tension to benefit sales and earnings going forward.

The shares face ongoing headline risk, as the company's F-35 fighter jet program has been targeted at times by President Trump, whose trade and tariff tweets and threats have also had a negative impact on the share price.

But management has a history of navigating through challenges. The company is mindful of shareholder returns and has raised the dividend at a double-digit rate for the past 16 years while also aggressively buying back stock.

Based on the company's pipeline growth and historical focus on margins, we are raising our 2019 EPS forecast to $20.20 from $19.45. Our estimate is above the midpoint of management's target range and implies growth of 11%.

See also: Starbucks (SBUX): 2019 Top Picks' Mid-Year Update

We look for accelerated growth in 2020, reflecting the backlog as well as some changes in pension responsibilities and accounting, and are boosting our EPS forecast to $24.25 from $21.40. Our long-term EPS growth rate forecast is now 10%, up from 9%.

The current yield of 2.9% is high for the industry. Our target price for this buy-rated blue-chip defense company is $370, raised from $330, based on expectations for faster growth. We view the shares as a suitable core holding in a diversified portfolio.

More From MoneyShow.com: