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Lockheed Wins $2.4B Deal to Supply Spares for F-35 Jets

Zacks Equity Research

Lockheed Martin Corp.’s LMT Aeronautics business segment recently secured a modification contract to procure initial spares for F-35 Lightning II Joint Strike Fighter jets. The deal has been awarded by the Naval Air Systems Command, Patuxent River, Maryland.

Details of the Deal

Valued at $2.4 billion, the contract will cater to the U.S. Air Force, Marine Corps, Navy, non-Department of Defense (DoD) participants and Foreign Military Sales (FMS) customers. Under the agreement, Lockheed Martin will provide global spares packages, base spares packages, deployment spares packages, afloat spares packages and associated consumables related to the F-35 aircraft.

Majority of the task will be carried out in Fort Worth, TX; El Segundo, CA; Owego, NY; Samlesbury and Cheltenham, the United Kingdom.

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A Brief Note on the F-35 Program

The F-35 Lightning is a supersonic, multi-role fighter jet that represents a quantum leap in air-dominance capability, offering enhanced lethality and survivability in hostile, anti-access airspace environments. Currently, it is being used by the defense forces of the United States and 11 other nations, chiefly owing to its advanced stealth, integrated avionics, sensor fusion, superior logistics support and powerful integrated sensors capabilities.

What Favors Lockheed Martin?

The F-35 is Lockheed Martin’s largest program that generates more than 25% of its total sales. At the company’s Aeronautics division, the program fueled annual revenue growth by 19.6% in 2018. Keeping up with this trend, we may expect the latest contract win to help the Aeronautics unit deliver similar or even better performance in the upcoming quarters.

The production of F-35 is expected to improve 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 overseas customers, and rising global demand for military jets.

With 341 production aircraft in backlog as of Jun 30, 2019, and considering the aforementioned inventory of the U.S. government, we may expect the F-35 program to consistently act as a key catalyst for the company.

Such developments reflect solid prospects for Lockheed Martin’s F-35 program, which are likely to boost the company’s profit margin.

Price Movement

In a year’s time, shares of Lockheed Martin have gained 16.2% compared with the industry’s 5% rise.

Zacks Rank & Other Key Picks    

Lockheed Martin currently carries a Zacks Rank #2 (Buy). A few other top-ranked stocks in the same space are Wesco Aircraft Holdings, Inc. WAIR, Leidos Holdings, Inc. LDOS and Northrop Grumman Corp. NOC, each carrying a similar rank as Lockheed Martin. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wesco Aircraft Holdings boasts a solid long-term earnings growth rate estimate of 12%.  The Zacks Consensus Estimate for fiscal 2019 earnings has moved 1.2% up to 85 cents over the past 90 days.

Leidos Holdings delivered average positive earnings surprise of 6.51% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 2.2% to $4.68 over the past 90 days.

Northrop Grumman delivered average positive earnings surprise of 20.11% in the last four quarters.  The Zacks Consensus Estimate for 2019 earnings has moved 1.8% north to $19.63 over the past 90 days.

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Leidos Holdings, Inc. (LDOS) : Free Stock Analysis Report
 
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