Pentagon’s prime contractor, Lockheed Martin Corp. (LMT) won two contacts from the U.S. Department of Defense (DoD) on Friday, Jan 31, 2014.
The larger of the two contracts is worth $105.3 million. In this modification contract Lockheed Martin will continue to provide logistical, program management, and engineering support for the U.S. Air Force’s C-130J Super Hercules transport planes under the C-130J Long-Term Sustainment Program for one added extra year. Work on the contract will be executed at Marietta, Ga., and will run through Jan 31, 2016.
The second award is a $48.9 million "ceiling requirements" foreign military sales (“FMS”) contract for C-130J Long Term Sustainment Support. Under the program head, Lockheed Martin will provide the Royal Norwegian Air Force with return and repair support and spare parts support, along with engineering, in country representative and modification support. Work on this contract is slated to be completed by Nov 30, 2018.
Recently, Lockheed Martin reported impressive fourth quarter 2013 results, beating both earnings and revenue estimates. Also, the company continued to grow its backlog and generate strong cash from operations while maintaining its cash deployment strategy.
The company continues to receive contracts from the DoD, ranging from big to small tickets. Despite the uncertainty plaguing the industry, the company has been able to generate $15.4 billion in orders in the fourth quarter of 2013. Going forward, varied product offerings, strong program execution and cost reduction measures will help the company to sustain its profitability.
That said, Lockheed Martin will largely have to depend on the success of its F-35 fighter jet program as well as FMS contracts to counter the harsh domestic budget environment. Most of the company’s top line is expected to come from foreign governments over the next five years. The company is confident of selling its high-priced F-35 fighter jets to foreign clients, which would to some extent compensate for lower defense spending at home.
Other defense contractors like Raytheon Co. (RTN) are also focusing on overseas sales to counter domestic budget pressure. Best known for its missile defense systems, such as the Patriot, Raytheon‘s international business is now expected to garner close to 30% of total revenues this year.
Lockheed Martin currently carries a Zacks Rank #2 (Buy). Other defense stocks also worth considering include Northrop Grumman Corp. (NOC) and Embraer SA (ERJ), both with a Zacks Rank #2 (Buy).