Lockheed Martin Corp. LMT has been awarded a contract by the U.S. Navy for the construction of one littoral combat ship (“LCS”). The contract modification, which is part of the Navy’s fiscal 2010–fiscal 2015 block buy, also includes funds in advance procurement for a second ship.
This latest contract – valued at $441 million in total − includes $362 million for one LCS and an additional $79 million in advance procurement for a second ship from the fiscal 2015 funds. The remaining fund for the second ship will be available by Dec 31 and that will be from fiscal 2016 appropriations. The contract also includes an option for another LCS in fiscal 2016.
Apart from Lockheed Martin, the Navy also awarded Austal USA $691 million for two LCSs. Under the contract, Austal’s Mobile, AL, yard will build the LCS-22 and 24, whereas Lockheed Martin subcontractor, Marinette Marine in Marinette, WI, will build the LCS-21. The LCS-23 will be the deferred fiscal 2016 Lockheed Martin LCS.
Under the dual block-buy strategy, the Navy would award each LCS contractor a 10-ship contract for the period fiscal 2010–fiscal 2015. However, last February, the U.S. Navy amended its strategy and the last LCS in the original block buy was deferred to fiscal 2016, with two more ships added to the buy in 2016.
An LCS is a type of relatively small surface vessel intended for operations in the littoral zone. These are well designed to tackle rapidly changing global threats and provide a cost-effective solution in the current climate of tight budgets.
Lockheed Martin is the chief contractor of the U.S. Navy’s newest LCS. The program of building these Freedom-class ships involves 900 companies in 43 states. The fleet will be a total of 32 ships when completed, with Lockheed Martin building about half of them.
Pentagon’s prime contractor, Lockheed Martin delivered an average beat of 6.56% in 2014. With the company opening the first quarter of 2015 with several big-ticket contracts, we expect rising orders to drive the earnings beat in 2015 as well.
Lockheed Martin currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Huntington Ingalls Industries, Inc. HII, Rockwell Collins Inc. COL and Spirit AeroSystems Holdings, Inc. SPR, all carrying a Zacks Rank #2 (Buy).
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