Lockheed Martin Corporation LMT recently received a $215.8 million foreign sales contract for the sale of night vision systems for Apache attack helicopters to India. Per the contract, work on the systems will be executed in Orlando, FL and is expected to be completed by Dec 31, 2021.
The aforesaid contract reflects a long-term geostrategic defense partnership between India and the U.S. India enjoys a prime geographic location, has expert engineers and boasts lower manufacturing costs. Moreover, the nation is committed to military modernization and indigenous research and development. Helping the case is the increase in India’s Foreign Direct Investment limit in defense sector to 49%. All these factors present significant opportunities for long-term collaboration between the two countries.
The company generated 20% of its total revenue from international customers in 2014. The company’s international mix is expected to grow further and become 25% of total revenue in the upcoming years.
Lockheed Martin is the largest U.S. defense contractor. The company’s platform-centric focus guarantees a steady inflow of follow-on orders from a leveraged presence in the U.S. Army, Air Force, Navy and IT programs.
On Nov 25, 2015, President Obama signed a $607 billion annual defense policy bill. The bipartisan budget deal comes as a great relief for the U.S. Department of Defense (DoD) as it raises the spending limit by $33 billion for 2016 and by $23 billion for 2017. This allows the Pentagon to get a total of $607 billion in 2016 and $610 billion in 2017.
The new deal provided the Pentagon with a two-year budget certainty. This is especially important as defense programs require long-term strategic planning and multi-year acquisition contracts. Again, the agreement gives the military a higher spending capacity than the usual limit. This deal, therefore, provides some respite after six consecutive years of budget insufficiency.
Subsequently, the outlook for major defense players has improved due to the budget agreement, increased demand from the Middle East and the companies' focus on foreign arms sales. Lockheed Martin continues to witness robust demand in the international market for its products. In particular, the Asia Pacific and the Middle Eastern countries make up the company’s biggest market for Missile Defense.
A world fraught with geopolitical tensions has led to various nations ramp up their defense capabilities. Increasing threats and growing need to safeguard the interests of the nations and their people have pushed up the demand for U.S. weapons. This has in turn been benefiting U.S. defense manufacturers. Countries allied with the U.S. policy are spending substantially on sophisticated weapons to wage the war against terror group Islamic State of Syria and Iraq (ISIS). Additionally, tensions in Korea and East and South China Sea are increasing the demand of U.S. manufactured artillery.
A number of nations, such as India, Japan, the United Arab Emirates, Saudi Arabia and Brazil are increasing defense spending and are thus generating business for the major U.S. defense companies.
Zacks Rank
Lockheed Martin currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the aerospace and defense sector include Leidos Holdings, Inc. LDOS, General Dynamics Corporation GD and The Boeing Company BA. While Leidos sports a Zacks Rank #1 (Strong Buy), both General Dynamics and Boeing hold a Zacks Rank #2 (Buy).
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