Lockheed Martin Corp.’s LMT Rotary and Mission Systems business division has won a modification contract from the U.S. Navy for providing support services for the Advanced Electronic Guidance and Instrumentation System (AEGIS) program.
The contract is valued at $80.6 million. The contract was awarded by the Naval Sea Systems Command, Washington, D.C.
This defense contract involves foreign military sales (“FMS”) to support the naval forces of Japan, South Korea, Norway, Australia and Spain through AEGIS implementation studies for future FMS shipbuilding programs.
The work is scheduled to be completed by Nov 2019. Majority of the work will be executed in Moorestown, NJ; while the rest will be performed in Tokyo, Japan; and Seoul, South Korea. The contract will use foreign military sales funds.
Lockheed Martin’s AEGIS Ballistic Missile Defense (ABMD) is the naval component of the U.S. Missile Defense Agency's (MDA) Ballistic Missile Defense System (BMDS). It is the world’s only maritime BMDS that can simultaneously attack land targets, submarines and surface ships, while protecting the fleet against aircraft, cruise missiles and ballistic missiles.
Over time, AEGIS has evolved with new capabilities to counter emerging threats and leverage new technologies. Its latest configuration, Baseline 9, offers an open architecture framework to allow extreme flexibility. As the AEGIS Combat System Engineering Agent, Lockheed Martin has been consistently developing new capabilities and finding innovative ways to deploy them across a fleet of over 100 ships in the U.S. and overseas.
In Aug 2016, this defense major had announced plans to expand the global AEGIS fleet in the U.S., Japan and the Republic of Korea under a $490 million deal to bring integrated air and missile defense (IAMD) capabilities to new destroyers. These ships will be equipped with Aegis Baseline 9, capable of IAMD.
Lockheed Martin’s Rotary and Mission Systems business carries out some of the company’s high-profile programs including the Aegis Combat System, Littoral Combat Ship, MH-60 helicopter avionics along with military and commercial orders. It generated revenues of $3.8 billion in the fourth quarter of 2016, reflecting 27.7% of total revenues.
Moving ahead, the company’s improved cash outlook for 2017 reflects enhanced cash performance at the Rotary and Mission Systems division. That said, the aforementioned contract gain has the potential to boost revenues of this business division.
Currently, Lockheed Martin’s Aegis system is the maritime weapon system of choice for six powerful nations. Considering this and the aforementioned developments, we expect the latest contract to likely help management attain the sales target for the division.
Lockheed Martin’s stock has improved about 22.1% in the last one year, underperforming the Zacks categorized Aerospace/Defense industry’s gain of 27.7%. This could be because the earlier budget cuts have put pressure on the top line although the present defense budget is more in favor of the sector. Budget deficits and political uncertainty make future defense budgets vulnerable to cutbacks. As a result, Lockheed Martin’s performance lagged behind the likes of General Dynamics Corp. GD, Textron, Inc. TXT and Huntington Ingalls Industries, Inc. HII, who have all outperformed the industry.
Lockheed Martin currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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