Wall Street spent most of 2026 punishing Lockheed Martin for a first quarter it deserved to lose. A Q1 earnings miss driven by cost issues on the F-16 and C-130 programs sent the stock skidding more than 20% from its March peak near $692. The question now is whether the punishment fit the crime, and the Q2 numbers suggest it did not.

Lockheed’s second quarter put the thesis back on solid ground. Revenue hit $20.06 billion, up 10.5% year-over-year and 3.8% above consensus. GAAP EPS came in at $7.94 against a $7.20 estimate. Free cash flow reached $2.9 billion for the quarter. The company raised full-year revenue guidance to a midpoint of $80.75 billion, about 2% above what analysts had modeled going in.

The Business

Lockheed builds the F-35 fighter, PAC-3 and THAAD interceptors, Sikorsky helicopters, and the classified missile defense architecture the Pentagon is scaling aggressively right now. The Missiles and Fire Control segment is the engine. It grew 18% in Q4 2025 alone, and backlog in that segment has nearly doubled to $87.9 billion, fueled by a $35 billion seven-year contract action for THAAD interceptors awarded in the first half of 2026.

Total backlog reached a record $230.4 billion as of June 28, 2026, up $36.8 billion in just six months. Lockheed expects to convert roughly 30% of that into revenue over the next 12 months, and 50% within 24 months. Book-to-bill hit 3.2x in the most recent quarter.

Why Wall Street Is Paying Attention

On September 8, UBS upgraded the stock to Buy and lifted its price target to $674 from $581, implying roughly 28% upside from the September 4 close of $525.28. The bank’s argument centers on what it calls a structural shift: UBS projects 150% revenue growth from 2025 to 2030 in the missiles segment alone, based on multi-year production frameworks for PAC-3, THAAD, PrSM, and JASSM/LRASM programs. It expects a 9% revenue compound annual growth rate through 2028, above consensus, with double-digit earnings-per-share upside by then.

Days after the upgrade, the Navy disclosed a $257.3 million contract modification for MK 48 heavyweight torpedo components involving Lockheed. It is not a transformative contract on its own, but it illustrates the consistency of awards flowing into a backlog the market has been underweighting.

What’s Driving the Opportunity

Defense spending is not a near-term story. Global rearmament, the FY2027 Pentagon budget, and multi-year munitions contracts have created demand visibility that extends well beyond a single fiscal year. Lockheed’s full-year free cash flow guidance of $7.0 to $7.2 billion implies a free cash flow yield close to 5.8% at current prices. The dividend has been raised for 23 consecutive years, currently yielding roughly 2.6%.

What Could Go Wrong

The Q1 miss is not ancient history. Fixed-price contracts remain in the portfolio, and cumulative losses on a classified Aeronautics program have already accumulated roughly $1.8 billion. A second-half margin recovery is built into full-year guidance. If it doesn’t materialize, the EPS consensus unravels. Congressional budget delays are the other lever: UBS acknowledged the fiscal 2027 budget carries risk, though it argues awards are already flowing and outlay catch-up is underway.

The Bottom Line

Lockheed is trading at roughly 17.5 times 2026 earnings with a backlog that is the largest in the company’s history, a segment growing at rates not seen in a generation, and an upgrade from a bank that was neutral for years. The stock is 23% off its high for reasons that belonged to Q1. The Q2 report and the missile order book say the bear case is losing ground.