Lockheed Martin Wins $23M Deal for A-RCI System and Services

Lockheed Martin Corp.'s LMT business unit, Rotary and Mission Systems, recently clinched a modification contract for the procurement of Technical Insertion 18/20 Acoustic Rapid Commercial Off-the-Shelf Insertion (A-RCI) insertion systems, pre-cable kits and spares. It will also provide production support services. The deal includes options, which, if exercised, will bring its cumulative value to $433 million.

Details of the Deal

Valued at $22.8 million, the contract has been awarded by the Naval Sea Systems Command, Washington, DC. Majority of the work will be carried out in Manassas, VA, and Clearwater, FL, while the rest will be executed in Syracuse, NY and Marion, FL.

Lockheed Martin will have to complete the work by May 2024.

About A-RCI Systems

A-RCI is an open-architecture sonar system that uses legacy sensors. It also replaces central processors with commercial off-the-shelf (COTS) computer technology and software within submarines. A-RCI uses a progression of technology insertions (TI) to enhance sonar signal processing which helps the U.S. Navy in searching, detecting and tracking submarines and surface vessels in open-ocean and littoral sea environments, without being counter-detected. Additionally, it facilitates covert execution of Naval Special Warfare missions as well as under-ice operations.

Reasons Behind Lockheed’s Selection

Since late 90’s, Lockheed Martin’s introduction of the A-RCI Sonar Systems has been a very effective introduction to its product portfolio, offering improved acoustic quieting measures at reasonable costs. Ever since its inception, it has successfully been able to upgrade the system multiple times, which is extensively preferred in U.S. submarine fleets.

Inevitably, Lockheed Martin has successfully been selected by the US. Department of Defense for contracts related to A-RCI Systems.

Further, Lockheed Martin’s Rotary and Mission Systems segment, which designs and manufactures the A-RCI Sonar Systems, generated revenues of $3.2 billion in the first quarter of 2018, reflecting almost 27.5% of its total revenues, led by higher sales for its integrated warfare systems and sensors programs along with (C6ISR) programs.

Budget Revision – Lockheed’s Gain

Lockheed Martin, being the Pentagon’s largest and prime defense contractors, enjoys a steady flow of contracts to its credit. In line with this, President Trump’s recently proposed fiscal 2019 defense budget provisions for an investment plan of $13.5 billion, which also includes $1.7 billion for the procurement of 43 AEGIS Combat Systems. Evidently, such provisions reflect solid growth prospects for the company’s Rotary and Mission Systems segment, which, in turn, are likely to boost the company’s profit margin going ahead.

Price Movement    

Lockheed Martin’s stock has improved about 13.1% in the last one year, compared with the broader industry’s gain of 40.7%. 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 top-ranked stocks in the same sector are AeroVironment, Inc. AVAV, L3 Technologies Inc. LLL and Wesco Aircraft Holdings, Inc. WAIR. While AeroVironment sports a Zacks Rank #1 (Strong Buy), L3 Technologies 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%.

L3 Technologies recorded an average positive earnings surprise of 7.42% in the past four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 1.9% to $9.64 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 10% to 77 cents in the past 90 days.

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