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Lockheed Clinches $4.1B Army Contract

Zacks Equity Research

Threats of sequestration, budget cuts and the government’s partial shutdown notwithstanding, Lockheed Martin Corp. (LMT) has received a sizeable contract from the U.S. Army valued at potentially as much as $4.1 billion to provide communications equipment and services.

Per this indefinite-delivery/indefinite-quantity contract (:IDIQ), Lockheed will compete for task orders to provide communications and transmissions systems to the U.S. Army's Project Manager of Defense Communications and Army Transmissions Systems (PM DCATS) over the next five years. The awards must be initiated within the contract’s five-year period and will have a ceiling value of $4.1 billion.

The world's largest U.S. defense contractor will partner Globecomm Systems Inc. (GCOM), Inmarsat, and Hughes Network Systems for specific communications infrastructure capabilities that are vital to the PM DCATS mission.

This latest deal comes a few days after Raytheon Co. (RTN) inked a defense contract with the U.S. Navy. The contract with a value of $1.6 billion calls for Raytheon to make missile and defense-radar systems for a new generation of destroyers.

Sequestration and spending cuts were expected to adversely impact the performance of the defense behemoths that explicitly provide products and services to these defense establishments. However, defense players like Lockheed, Raytheon, General Dynamics Corp. (GD), Northrop Grumman Corp. (NOC) and The Boeing Co. (BA), seem to be doing well despite the cuts in defense budgets and big-ticket programs.

Lockheed Martin has a wide customer base comprising the U.S. government, foreign governments and other commercial buyers. Recently, Lockheed won two major contracts, worth $7.8 billion, from the U.S. Department of defense (DoD) for 71 more F-35 fighter jets. Both these agreements mark a significant milestone reflecting cost reduction efforts for this very expensive fighter jet. The defense department inked agreements for the sixth and seventh lots of the U.S. military’s most exclusive weapons acquisition program – the F-35 Joint Strike Fighter.

Lockheed presently retains a short-term Zacks Rank #1 (Strong Buy). We also have Raytheon and Northrop Grumman in the space with a Zacks Rank #2 (Buy).

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