Lockheed Martin (LMT) Wins $558M Deal to Support F-35 Jets

Lockheed Martin Corp.’s LMT Aeronautics business division recently secured a contract worth $558.3 million to support the low-rate initial production of F-35 Lightning II aircraft of the 11th lot. Work related to the deal is scheduled to be completed by February 2023.

Majority of the task will be performed in Orlando, FL; while the rest will be executed in Redondo Beach, CA; Fort Worth, TX; Owego, NY and Samlesbury, United Kingdom.

Details of the Deal

The deal has been awarded by the Naval Air Systems Command, Patuxent River, Maryland. Per the terms of the agreement, the company will provide sustainment support, which includes equipment, training devices, training facilities, non-aircraft spares, Autonomic Logistics Information System hardware and software support along with facilities standup.

The contract will cater to the U.S. Air Force, Marine Corps, Navy, non-Department of Defense (DoD) participant and foreign military sales (“FMS”) customers. The deal includes 31% of the work for the Air Force; 11% for the Marine Corps, 9% for the Navy, 42% for the non-DoD participants and 7% for international military customers.

Fiscal 2016, 2017 and 2018 aircraft procurement funds (Air Force, Marine Corps, and Navy, non-DoD participant) and FMS funds will be utilized to complete the task.

F-35 Lightning II Attributes

Lockheed Martin’s F-35 Lightning II is a single-seat, single-engine 5th Generation fighter aircraft that comes with an advanced stealth feature combined with enhanced fighter speed and agility, fully fused advanced sensor information, weapons capacity and range, network-enabled operations and advanced sustainment.

The F-35’s ability to collect, analyze and share data is a powerful force multiplier enhancing all airborne, surface and ground-based assets in the battle space and enabling military personnel to effectively execute combat  missions. In fact, three variants of F-35 are set to replace five fighter jets for the U.S. Air Force, Navy and Marine Corps as well as a variety of fighter jets for at least 10 other countries.

Recent Developments

The F-35 program, being Lockheed Martin’s largest project, generated 24% of the company’s net sales in the first quarter of 2018. Moreover, higher sales from the F-35 program, in the first quarter, enabled the company’s Aeronautics segment’s revenue to grow 7% year over year to $4.4 billion.

Lockheed Martin, being one of the Pentagon’s prime contractors, enjoys a steady flow of contracts each year and the second quarter of 2018 has not been any exception either. In April, the company secured a contract worth $211 million for offering Block 4.1 common capabilities pre-modernization efforts to support the preliminary design review of F-35 Lightning II jets.  Considering such order inflows along with the latest one, we expect its Aeronautics unit to reflect similar solid performance in the coming quarterly results as well.

Moreover, production of F-35 is expected to rise in the years ahead, given the U.S. government’s current inventory objective of 2,456 aircraft for the Air Force, Marine Corps and Navy along with commitments from the company’s eight international partners and rising international demands.

Furthermore, President Trump’s recently proposed fiscal 2019 defense budget provisions for a spending plan of $21.7 billion on Aircraft. The budget proposal hints at a prospective increase in Lockheed Martin’s F-35 Joint Strike Fighter program that has been allotted $10.7 billion along with additional funding for the procurement of 97 F-35 Joint Strike Fighters. Evidently, these developments reflect solid growth prospects for Lockheed Martin’s F-35 program going ahead, which in turn are likely to boost the company’s profit margin.

Price Movement    

Lockheed Martin’s stock has improved about 15.1% in the past one year, compared with the broader industry’s gain of 41.2%. The underperformance may have been caused by the intense competition that the company faces in the aerospace-defense space for its broad portfolio of products and services, both domestically as well as internationally.

 

Zacks Rank & Key Picks    

Lockheed Martin currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are AeroVironment, Inc. AVAV, Boeing BA and Wesco Aircraft Holdings, Inc. WAIR. While AeroVironment sports a Zacks Rank #1 (Strong Buy), Boeing and Wesco Aircraft Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AeroVironment recorded an average positive earnings surprise of 147.43% in the past four quarters. The company’s long-term growth rate is pegged at 20%.

Boeing recorded an average positive earnings surprise of 29.51% in the past four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 56 cents to $14.61 in the past 90 days.

Wesco Aircraft Holdings long-term growth rate is pegged at 12%. The Zacks Consensus Estimate for 2018 earnings has risen by 7 cents to 77 cents in the past 90 days.

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