Al Root

Boeing pulled off an upset when President Donald Trump announced the Air Force's next jet fighter, designed to ensure America rules the skies for years to come, would be made by Boeing instead of rival Lockheed Martin.

Both stocks reacted Friday, the day of the announcement, and the size of the reactions makes sense.

Boeing shares rose $5.28 a share, or 3.1%, adding about $4 billion in market value.

Jefferies analyst Sheila Kahyaoglu wrote Sunday that the win could add about 25 cents a share to Boeing's earnings over time. That's based on $4 billion in annual revenue and profit margins of about 5%.

The F-47 is a sixth-generation jet fighter. Generations refer to the technology and capabilities of certain plans; the F-35 and F-22 are fifth-generation fighters. Russia and China have fifth-generation fighters, and China has shown what appears to be a prototype of a sixth-generation jet.

The F-47 will eventually replace the F-22, of which the Air Force has about 190. The new jet will cost hundreds of millions of dollars to build and hundreds of millions more to maintain and service over the many decades it will be expected to operate.

Kahyaoglu's margin assumption is reasonable, even considering Boeing's struggle in its defense business. A combination of fixed-price contracts and higher-than-expected inflation has resulted in more than $10 billion in cumulative losses over the past three years.

At 20 times earnings, 25 cents a share is worth $5 per Boeing share, "in line with [Friday's] move," wrote Kahyaoglu.

She rates Boeing shares Buy and has a $220 price target for the stock.

Lockheed stock dropped $27.04, or 5.8%, wiping out about $6 billion in market value. It's a larger drop, but Lockheed's operating profit margins in its aeronautics business segment have averaged about 29% over the past three years.

That might be too much to assume for a new program, and companies account for things slightly differently. Overall profit margins at Lockheed have averaged closer to 12%. Using Kahyaoglu's sales forecast, Lockheed might be looking at $400 to $500 million in annual lost net income, or about $2 a share.

The $27 stock drop is 13.5 times the estimated earnings-per-share loss. Lockheed shares trade for about 16 times estimated 2025 earnings.

Overall, the market seems to have made sensible adjustments to the announcement.

For Boeing stock, what happens next won't likely depend on F-47 developments. It will depend on Boeing's ability to ramp up production of commercial airliners. For Lockheed stock, what happens to military spending in the U.S. and Europe will move shares.

Lockheed beat Boeing out for the F-35 program in 2001. A year after the October award, Lockheed stock was up 13%, while Boeing shares and the S&P 500 were down 20% and 19%, respectively.

The F-35 decision likely played some role in the movements of both stocks. All three moves, including the S&P, however, were likely more heavily influenced by the continuing aftermath of the Sept. 11, 2001 attacks on the World Trade Center and Pentagon.

Jefferies rates Lockheed Hold and has a $510 price target for the stock.

Write to Al Root at allen.root@dowjones.com

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March 24, 2025 03:10 ET (07:10 GMT)

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