Lockheed Martin Corporation (LMT) has struck an $835 million deal to supply F-16 aircrafts to the government of Iraq. The contracts will be facilitated through the Air Force Security Assistance Center housed at Wright-Patt, Ohio. The center manages the transfer of aircraft to allied countries.
Lockheed Martin is the largest U.S. defense contractor with a platform-centric focus that guarantees a steady inflow of follow-on orders from a leveraged presence in the Army, Air Force, Navy and IT programs. Going forward, we believe Lockheed Martin has significant upside potential based on the Obama administration’s focus on Intelligence Surveillance Reconnaissance, unmanned systems, force protection, cyber security, and missile defense.
However, these positives are dampened by defense budget cuts, headwinds in margins, higher pension liability and risk regarding retrenchment cost recovery. The U.S. economic fundamentals are basically being kept on a tight leash as the Euro-crisis continues to cast its spell over financial markets keeping risks of further cutbacks in future defense budgets at a high point. The Zacks forecast of GDP growth for the second half of 2011 is now at just around 2.7%. This culminates into a GDP growth rate of 2.9% for fiscal 2011. Our apprehension is fuelled by $15 trillion of national debt and an unemployment rate hovering around 9% which would lead to the Budget Control Act’s dictum of automatic cutbacks across the board from fiscal 2013. This would surely not result in any extra bacon for defense goliaths in general and Lockheed Martin in particular.
Lockheed Martin presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock. The company mainly competes with Northrop Grumman Corporation (NOC) and Raytheon Company (RTN).
Earlier, in October this year, Lockheed Martin showed resilience, reporting strong third quarter fiscal 2011 operating earnings of $1.99 per share. The quarter’s results sailed past both the Zacks Consensus Estimate of $1.81 and year-ago earnings of $1.53 per share.
Based in Bethesda, Maryland, Lockheed Martin is a global security company that is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.
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