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Lockheed Gets $852M for LRIP-6

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Lockheed Martin Corp. (LMT) has received a contract worth $852.3 million from the U.S. Department of Defense (DoD) to provide the required equipment for F-35 fighter jets under Low Rate Initial Production Lot 6 (LRIP-6). This contract is slated for completion in Dec 2016.

This is a modification contract to an existing contract that calls for Lockheed Martin to supply particular tooling and special test equipment for the U.S. Navy, U.S. Air Force and their international associates. These are critical in maintaining the current F-35 delivery schedules and meeting future production rates.

Recently, the DoD and Lockheed Martin clinched a deal for the lots 6 and 7 low-rate initial production (:LRIP) contracts for the F-35 Lightning II joint strike fighter (:JSF) aircraft. This agreement was signed after six months of negotiations and included the supply of 71 fighters at reduced prices. This will eventually enable the Pentagon to procure all originally planned aircraft regardless of budget sequestration.

The largest U.S. defense contractor, Lockheed Martin, is poised to benefit from its variety of product offerings, strong program execution and cost reduction measures. This focus guarantees a steady inflow of follow-on orders from a leveraged presence in the Army, Air Force, Navy and IT programs.

During the second quarter of 2013, the company’s Aeronautics division witnesses a marginal decrease in revenues on a year-over-year basis due to lower sales from F-16, F-22 and C-130 programs. However, higher sales from F-35 and C-5 programs partly offset the negatives. Lockheed Martin finished the second quarter with $75,100 million of backlog. Of this, $26,500 million, comprising more than 35%, belonged to the Aeronautics segment.

We expect the company to continue to benefit from a strong defense focus on a number of its programs, such as the C-130 Hercules and C-5 Galaxy transport aircraft, F-16 Fighting Falcon multi-role jet, MH-60 helicopters, the Advanced Extremely High Frequency & the Global Positioning Satellite III system satellites, the Littoral Combat Ship, the Aegis Weapons System for mobile and sea-based missile defense and the THAAD system.

The company presently retains a short-term Zacks Rank #2 (Buy). Other stocks worth considering in the space include Huntington Ingalls Industries, Inc. (HII), Northrop Grumman Corp. (NOC) and General Dynamics Corp. (GD), all with a Zacks Rank #2 (Buy).

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