Defense behemoth Lockheed Martin Corp. (LMT) won two contracts on the Pentagon’s final funding day of 2013. Of the total $582.1 million worth of contacts dispersed, Lockheed Martin won $271.7 million worth of contracts in aggregate. The company’s share price inched up 1.1% to close at $148.66 on Dec 31, 2013.
The bigger contract between the two has a value of $263.4 million. This firm-fixed-price foreign military sales contract calls for Lockheed Martin to supply 14 four-packs of Patriot anti-aircraft missiles and seven launcher modifications kits to the Kuwaiti military. Deliveries are scheduled for Jun 30, 2016.
The second contract is a firm-fixed-price modification contract, worth $8.3 million. This contract entails 12-month follow-on support to the Foreign Military Sales Peace Krypton Program for the Republic of Korea. The company will continue to support the system till the end of this year. As per this project – which calls for high level surveillance and reconnaissance – South Korea can fly specially equipped Hawker 800 aircraft on long-range missions to capture intelligence through Synthetic Aperture Radar imagery. Work on this contract is expected to be completed on Dec 31, 2014.
Budget cut or sequestration is hanging as a Damocles’ sword over major military contractors like Lockheed Martin, Northrop Grumman Corp. (NOC), The Boeing Co. (BA) and Raytheon Co. (RTN). While Lockheed Martin has delivered solid top- and bottom-line growth in recent times, it also has plans to cut jobs and close factories to counter budget austerities. Last year, sales to the U.S. government accounted for as much as 82% of total sales. Notably, Lockheed Martin guided sales for 2014 to come in lower than the $45 billion forecast for this year. The 2014 forecast takes into account the full impact of sequestration.
Given the difficult times, Lockheed Martin will largely have to depend on the success of its F-35 fighter jet program as well as foreign military sales contracts. Half of the company’s top line is expected to come from foreign governments over the next five years. Previously it had predicted 20% of revenues to come from FMS in the near term. The company seems confident of selling F-35 fighter jets to foreign clients, which would to some extent compensate for lower defense spending at home.
Lockheed Martin currently carries a Zacks Rank #2 (Buy).
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