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LMT, OPTT in a Wave-Energy Project

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Lockheed Martin Corporation (LMT) has entered into an agreement with Ocean Power Technologies, Inc. (OPTT) for the development of a 19-megawatt wave-energy project off the coast of Portland in Victoria, Australia.

Ocean Power Technologies is a leading wave-energy technology company. It harnesses ocean waves to generate reliable and clean electricity in an environmentally-friendly way.  Per the agreement, Lockheed will help OPTT in its PowerBuoy technology and lead the production and system integration of the wave-energy converters. It will lend its support to overall program management.

Wave energy has the potential to produce around 2,000 terawatt hours of electricity in a year, or sufficient power to meet 10% of the world's current energy needs.  

The project will be developed by Ocean Power Technologies (Australasia) Pty Ltd.’s subsidiary Victorian Wave Partners Pty Ltd, a special purpose company in Australia. To date, it is one of the largest wave-energy projects. The project leverages a grant from the Commonwealth of Australia and includes a previously announced grant of $65.3 million for it. The cohorts are in the process of evaluating financing opportunities for the project and are pursuing purchase power agreements with the local industry and utilities. As per the funding deed, the project is permitted to secure additional financing as and when a need arises.

This is not the first time that both the companies have come together for a project. They have been collaborating since 2004. Initially they worked on the development of an Advanced Deployable System for the U.S. Navy and recently joined forces to design and launch utility-scale wave energy converters off the coast of Reedsport, Oregon.

Lockheed’s partnership with Ocean Power Technologies proves its diversified revenue exposure. The company is focusing on applying its proficiency to commercialize emerging alternative energy technologies.

On the defense side, Lockheed Martin is the largest U.S. defense contractor with a steady inflow of follow-on orders from a leveraged presence in the Army, Air Force, Navy and IT programs. Also, we expect shareholders return to be shored up with the company’s focus on debt repayment, its ongoing share repurchase program and incremental dividend.

We currently have a cautious stance on Lockheed Martin Corporation due to the impact of the Euro-crisis on U.S. economic fundamentals. This increases the risk of further cutbacks in defense budgets. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds to our long-term Neutral recommendation on the stock.


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