I am sure that most readers probably noticed the upgrade that Goldman Sachs (GS) placed on Boeing (BA) over the weekend. GS analyst Noah Poponak suggested, "procuring shares at the current price" (BA closed at 95.01 on Friday), while increasing his price target to $173." Poponak believes that travel will be "as popular as ever" once this crisis abates.
While this is good news for a firm that some estimate will lose close to $1 billion in Q1, it was the Pentagon that offered not just Boeing, but defense contractors in general some positive news as the weekend got under way. The Pentagon took two steps that investors need to know about. First off, guidance was issued claiming that defense industry laborers are critical infrastructure workers. The guidance is not considered to be a federal mandate, but is meant to possibly be used by governments at the state and local levels as reason to keep these people on the job amid widespread closures during this public health crisis.
The Pentagon also announced an increase in interim payments made to defense contractors as a measure of offering a financial lift to the firms that the nation depends on for its military preparedness as the spread of the virus forces governments to take steps that substantially weaken the function of the U.S. economy. This measure hopefully keeps projects on schedule. Payment for large contractors will be increased from 80% to 90%, and for small contractors from 90% to 95%.
Large contractors would be the well-known names such as Boeing, Northrop Grumman (NOC) , General Dynamics (GD) , and the nation's largest contractor... long time Sarge fave Lockheed Martin (LMT) . On Friday, Lockheed applauded this action through the firm's Twitter account, adding that the firm would follow suit by flowing these funds through to their own supply chain partners in support of the nations uniformed services.
I do find it quite negative that U.S. equity markets so easily gave up early ground gained in pre-opening trade, after the Fed announced a new and increased level of aggression in the central bank's attempt to maintain liquidity and access to credit. The Fed committed to two new programs that would allow the Fed to purchase corporate bonds (including new issues) and the ability to buy securities backed by an array of vehicles used for consumer credit, such as student, auto, and credit cards in addition to loans made through the Small Business Administration. In addition the Fed made the overt newly announced quantitative easing program "unlimited." The floors for that program... $500 billion in Treasury purchases and $200 billion in mortgage backed securities have been removed, as there are no longer numerical targets or caps. The effort is now "as necessary."
That said, personally, I will be taking the very first step in rebuilding my long in Lockheed Martin this morning, after publication, as the market has sagged. Not that I do not believe that I can not get run over, but I am replacing shares sold considerably higher, so not a move outside of my broader strategy. I continue to maintain a very narrow book, though I do think that an entry level for Boeing is around here someplace. I am not jumping on the Goldman inspired pop, and I do believe that there probably has to be a dividend cut at some point, but the stock is on my radar.