Lockheed Martin Corp. (LMT) has been selected among one of the 15 awardees for an Indefinite-Delivery/Indefinite-Quantity (“IDIQ”) contract from the U.S Navy. Under the Space and Naval Warfare Systems Center (“SSC”) 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.
Per the contract, Lockheed Martin will be responsible for providing technical services associated with full system lifecycle support of computers and combat systems. These services will help the Navy in carrying out battle, business and intelligence activities.
Only last month, the company turned out to be one of the major beneficiaries of the 20 contracts, worth $717.7 million, handed out by the Department of Defense (DoD). The company secured four contracts that comprised nearly 20% of the entire award from the DoD.
At its first quarter earnings call, the company reaffirmed its faith in its products. Lockheed Martin believes its products are a primary component in the preservation of global security. Rising tensions and threats in the Korean peninsula along with ongoing conflict and instability in the Middle East compel the countries to maintain global security. We expect Lockheed Martin to register a stable performance in the long run due to a leveraged presence in the Army, Air Force, Navy and IT programs.
However, a large percentage of its business comes from the U.S. government. So cuts in defense spending could limit the results of its operating segments. Also, the situation is worsened with the wind down of war in Afghanistan and the effects of sequestration.
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.
The company during the first quarter earnings release had assumed this decline and had taken into account the effect of sequestration. Lockheed Martin indicated that it expects 2013 total revenue on the lower end of the guided range of $44,500.0 million to $46,000.0 million. The cut in U.S. military spending will likely reduce revenues by around $825 million. The company did not reduce its segment guidance; however it indicated that one third of the expected $825 million sequestration impact in 2013 could impact sales at each of the IS&GS and Mission Systems & Training segments, which are generally shorter cycle businesses than the Missiles & Fire Control, Aeronautics and Space segments.
Lockheed Martin presently retains a short-term Zacks Rank #3 (Hold). Stocks worth considering are Erickson Air-Crane Inc. (EAC), Northrop Grumman Corp. (NOC) and Wesco Aircraft Holdings, Inc. (WAIR). While Erickson Air-Crane carries a Zacks Rank #1 (Strong Buy), Northrop Grumman and Wesco Aircraft Holdings hold a Zacks Rank #2 (Buy).
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