S&P Global Ratings revised its outlook on Lockheed Martin Corp. to positive from stable, saying it expects the U.S. defense contractor's credit metrics to rebound in 2019 on higher earnings and cash flow.
Lockheed's credit metrics will weaken in 2018 due to $5 billion in voluntary pension contributions, S&P said, but will improve next year because of lower taxes, increasing government defense spending and reduced share repurchases.
The lower tax rate will result in annual savings of about $500 million and boost Lockheed's cash from operations to $7 billion in 2019 from $3 billion in 2018, according to S&P.
Meanwhile, Lockheed's revenue is projected to grow by 3% to 4% per year after 2018, as its key programs are expected to receive increased funding after the U.S. Congress raised the defense budget to $590 billion in March.
"These funding increases, as well as strong foreign demand for fighter aircraft and missile defense systems, should support moderate revenue growth over the next few years," said S&P, which affirmed all of Lockheed's ratings, including its BBB+ long-term corporate credit rating.
The rating agency also expects Lockheed to cut its share repurchases to $1 billion this year from $2 billion in 2016 and 2017. This reduction should help the company achieve a funds from operations-to-debt ratio of above 40% in 2019, which could warrant a rating upgrade, S&P said.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.
