The market is about right about the cash demands of faster production. I initiate Hold with a $576.07 twelve-month target: growing sales support higher earnings, but factory investment and uncertain funding limit the upside.
Key points
- $576.07 a share is my twelve-month target; initiate Hold.
- 6% sales growth in 2027 should support earnings, not a cash windfall.
- $3.5 billion of 2027 cash after investment limits the case for a higher valuation.
The call
The market is broadly right about the cash bottleneck. At my 19-times earnings valuation, today's price requires $27.98 a share in 2027. That means a 10.6% segment margin, profit before central costs, on my sales forecast.
Most missile and space backlog still awaits funding ($ billions)- Funded orders
- Unfunded orders
Source: September 30, 2026 10-Q, filed October 20, 2026. Firm orders, not all appropriated.
I expect better profits, but only modest upside. My 2027 forecast assumes an 11.5% segment margin and no share-count reduction. Sentinel authorizations supplied 68% of this year's backlog increase, while much of Defense's orders remain unfunded. January's earnings and cash outlook must show how those promises become deliveries.
Valuation
| Driver | My estimate |
|---|
| 2027 sales | $46.6 billion |
| 2027 segment operating margin | 11.5% |
| 2027 adjusted earnings per share | $30.32 |
| Core earnings multiple | 18 times |
| Strategic-deterrence franchise premium | 1 times earnings |
| Twelve-month target | $576.07 a share |
My earnings model uses a 15% tax rate, rather than extending unusually low recent taxes, and broadly stable pension income and financing costs. The premium rewards scarce bomber and missile capabilities; quantum commercialization gets no separate value without financing terms. Investment needs and weak longer-term relative performance argue against a larger premium; stronger orders argue against selling.
Risks
- B-21 costs could rise again; watch supplier settlements and the remaining early-production loss reserve.
- Cash could lag profit: September unbilled sales rose 12% from a year earlier, outpacing sales; watch customer collections and capital spending.
- Funding could slip beyond December's deadline; watch appropriations and conversion of unfunded orders, rather than treating the proposed defense budget as revenue.
What would change my mind
A 2027 cash forecast above $4 billion without asset sales, alongside stable B-21 cost estimates, would justify a higher target and a buy.