Lockheed Martin Corporation LMT has won a modification contract aggregating $528.5 million from the Missile Defense Agency, Alabama. This contract supplements the previous contract for the production of Lot 7 and Lot 8 Interceptors, one-shot devices, and other production support efforts for the Missile Defense Agency Terminal High Altitude Area Defense Project Office. Work on the contract is expected to commence in Jan 2016 and reach completion by Sep 2019.
Lockheed Martin is the largest U.S. defense contractor with a platform-centric focus that guarantees a steady inflow of follow-on orders from the Army, Air Force, Navy and IT programs. The company expects organic growth in 2016 to be led primarily by the Aeronautics segment and specifically by the F-35 program. Although the F-35 program faced technical engine related issues earlier in 2014, management expects margins on production contracts to increase at least 100 basis points in 2015.
Last week, Lockheed Martin nabbed three major defense deals, apart from a small one, from Pentagon’s funding list. The contracts are valued at $378 million in total (read: Lockheed Martin Wins $378M Defense Department Contracts).
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.
Subsequently, the outlook for major defense players has improved due to the budget agreement, increased demand from the Middle East and focus on foreign arms sales.
A world fraught with geopolitical tensions has led to various nations ramping up their defense capabilities. Increasing threats and a growing need to safeguard the interests of nations and their people have pushed up 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 war against the terror group Islamic State of Syria and Iraq. Additionally, tensions in Korea and East and South China Sea are increasing the demand of U.S. manufactured artillery.
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. 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.
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 Huntington Ingalls Industries, Inc. HII. While Leidos Holdings sports a Zacks Rank #1 (Strong Buy), both General Dynamics and Huntington Ingalls hold a Zacks Rank #2 (Buy).
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