Lockheed Martin Corporation (LMT) received a $49.9 million follow-on production contract from the Naval Surface Warfare Center for the Target Sight System (“TSS”). TSS is the fire control system for the U.S. Marine Corps' AH-1Z Cobra attack helicopter developed by Textron Inc. (TXT).
The Naval Surface Warfare Center awarded the initial TSS production contract in March 2008, followed by a second production contract in June 2010. Lockheed Martin delivered the first TSS in June 2009, and recently began early delivery of low-rate initial production units. Production is expected to continue through 2018. TSS is produced at the company’s facilities in Ocala and Orlando in Florida.
TSS integrates state-of-the-art sensors to provide aviators with superior imagery through a highly stabilized sensor suite, specifically tailored to the AH-1Z platform. The suite includes a laser designator, color TV camera and a third-generation, mid-wave, forward-looking infrared sensor with advanced image processing.
Going forward Lockheed Martin is expected to register a stable performance driven by its leveraged presence in the Army, Air Force, Navy and IT programs. Also, the company’s focus on debt repayment, share repurchase program and the incremental dividend will continue to shore up shareholder return.
The tepid recovery of the U.S. economy raises fears of further cutbacks in defense budgets, which will affect Lockheed’s prospects. The Zacks forecast of GDP growth for the second half of 2011 is now just shy of 2.0%. This culminates into a GDP growth rate of 1.3% for fiscal 2011.
U.S. economy growth is being restrained by a number of factors emanating from several sources, like the still-impaired financial system; weak household balance sheets related to weak home prices and equities; and still elevated risk aversion that is restraining hiring and spending by both business and households.
We now expect the national unemployment rate to rise through year-end 2011 (reaching 9.1%), stay above 9% through most of next year, and end 2013 at 8.4%. We now see greater downside risks to our GDP forecast for the U.S. economy in the near term, which may affect government spending on defense.
We, moreover, believe market pessimism is fully accounted for in the current valuation, which is at a discount to both industry peers and the overall market. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Headquartered 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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