Pentagon’s prime contractor, Lockheed Martin Corp. (LMT) is all set to win more defense contracts defying the threat of sequestration or budget cut. Lockheed Martin received back-to-back contracts from the Department of Defense (DoD), fetching $198.0 million of the total orders awarded on Mar 27.
The contract with the higher value comprises a $145.9 million modification contract for 13 additional AN/TPQ-53 radar systems. The contract, which is slated for completion by Nov 2016, also includes 13 corresponding sets of on-board spares.
The second one, worth $52.1 million, went to Lockheed Martin Aeronautics Co. This is a cost-plus-incentive-fee modification contract that calls for Lockheed Martin to implement phase 3 of the Joint Strike Fighter Autonomics Logistics Information System (:ALIS) Standard Operating Unit Version 2 (SOUv2) capability development effort. The work on this contract is expected to be completed by August next year.
Although the threat from sequestration remains for periods beyond fiscal 2015 and casts a shadow of uncertainty on long-term funding, these defense deals bear testimony to the wide range of products at the disposal of Lockheed Martin. The company receives over 80% of its revenues from the U.S. government, including around 60% from the DoD.
Moreover, Lockheed Martin seems to be in the wining spree following last year’s sequestration effect that reduced the government’s defense budget by $37 billion and negatively impacted its sales.
Recently, Lockheed Martin won a chunk of DoD orders, fetching $875 million in total. This comprises a $698 million fixed-price-incentive, firm target, advanced acquisition order for the procurement of long-lead parts, materials, and components required to build 57 Low-Rate Initial Production, or LRIP, Lot IX F-35 Lightning II Joint Strike Fighters.
The stringent budget environment has definitely raised an alarm for the defense companies. However, in January, the passing of Obama’s $1.1 trillion Omnibus spending measure allows Pentagon to utilize as much as $93 billion for buying weapons and another $63 billion for advancing research and development in the sector. With gradual strengthening of the global economy and the budget issues drawing to an end, the defense majors are expected to see stability in 2014.
Lockheed currently has a Zacks Rank #2 (Buy). Other players in the aerospace and defense industry, which look attractive at current levels, include Huntington Ingalls Industries, Inc. (HII), Wesco Aircraft Holdings, Inc. (WAIR) and General Dynamics Corp. (GD). Huntington Ingalls and Wesco Aircraft carry a Zacks Rank #1 (Strong Buy) while General Dynamics holds a Zacks Rank #2 (Buy).