Lockheed Martin Corp. (LMT) and General Dynamics Corp. (GD) have once again been a beneficiary of Department of Defense (DoD) contracts. Both have been successful in receiving a chunk of DoD contracts worth $7 billion.
The DoD has given approximately a dozen contracts to eight small privately held firms scattered around N.J., Md., Ind., and Va. Per the contract, these privately held firms along with Lockheed and General Dynamics will supply software and systems engineering services in support of the Army's Software Engineering Center.
Specifically, Lockheed has received a modification contract worth $29.4 million to develop and integrate Acoustic Rapid Commercial-Off-The-Shelf Insertion devices for the U.S. Navy's submarine fleet. The contract is expected to be completed by Dec 2013.
General Dynamics has received a firm-fixed-price multi-year foreign military sales contract worth $24.5 million to purchase MK80 General Purpose Bomb Bodies for supply to Australia, Saudi Arabia, and Iraq.
Last week, Lockheed Martin was selected among one of the 15 awardees for an Indefinite-Delivery/Indefinite-Quantity contract from the U.S Navy. Under the Space and Naval Warfare Systems Center Atlantic's Business and Force Support Multiple Award Pillar contract, the company will provide a variety of operational support services. The contract is worth a cumulative $900 million for all awardees, if all options are implemented. Last month, the company turned out to be one of the major beneficiaries of the 20 contracts, worth $717.7 million, handed out by DoD. The company secured four contracts that comprised nearly 20% of the entire award from the DoD.
However, according to media reports, budget cuts from sequestration reduced the number of contracts awarded by the DoD in April. The DoD only awarded contracts worth $19 billion, down 52% from Mar 2013.
That said, General Dynamics at its first quarter earnings call had declared that it does not see sequester as a significant threat to its 2013 results. The recent spate of contract wins amply proves the company’s faith in its business.
Despite the continuous inflow of contracts, the threat of sequestration, fear from budget uncertainty, the fate of high-cost programs, risks related to key project executions and order cancellations cannot be denied for most of the defense primes.
Both Lockheed Martin and General Dynamics presently retain a short-term Zacks Rank #3 (Hold). However, stocks that look better placed at the moment are Zacks Rank #1 Erickson Air-Crane Inc. (EAC) and Zacks Rank #2 Northrop Grumman Corp. (NOC).
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