UPDATE 1-Bernstein cuts price targets on US defense cos

March 16 (Reuters) - Sanford C. Bernstein cut its price targets on several U.S. defense firms, including Boeing Co (BA.N), citing cheaper valuations compared with the S&P 500 index .SPX amid concerns about the direction of the defense budget under the Obama administration.

"Trends in the defense budget remain the most important driver of defense stocks, and the cash flow outlook is strong for the defense businesses," analyst Douglas Harned said in a note to clients.

The analyst remains optimistic about the outlook for baseline defense spending and defense contractor performance, even as he sees a fall in supplemental budgets.

Harned's top pick in the sector remains Lockheed Martin Corp (LMT.N), with strong overall growth potential and unique support from the F-35 Joint Strike Fighter program.

The analyst also said that he does not expect a cut in baseline investment account for either the 2010 or 2011 budget.

Several core programs, including the F-35 Joint Strike Fighter, will remain fully funded, he noted. However, he expects delays in several long term development projects, including the Future Combat Systems (FCS) program.

"We expect FCS to finally be broken up by the Office of the Secretary of Defense, with delays on portions of the program."

For ratings and price target changes, please double-click [ID:nWNAB4083] (Reporting by Dhanya Ann Thoppil in Bangalore; Editing by Anil D'Silva)