u/cowardbeater1969

Existing sustainment contracts for defense contractors like Lockheed are not indefinite quantity and have fixed terms. An active conflict increases operational costs (labor, services) for LMT under these pre-existing contracts without an immediate, corresponding increase in revenue, thereby compressing profit margins. The market's positive reaction is based on a misunderstanding of how these contracts work. The stock is overvalued based on misplaced investor sentiment. The negative impact on profitability will become apparent in the next earnings report, so one should sell (or short) before that report is released. The market may secure new, highly profitable contracts for munitions and replacement hardware that more than offset the margin compression on existing sustainment agreements. Investor sentiment could also remain positive for an extended period, ignoring fundamentals.