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Lockheed Martin Secures $74M Navy Deal to Upgrade F-35 Jets

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Lockheed Martin Corp. LMT recently clinched a contract to stand-up depots outside the continental U.S. (OCONUS) for the maintenance, repair, overhaul, and upgrade (MRO&U) of the F-35 aircraft.  Work related to the deal is scheduled to be over by February 2022.

Details of the Deal

Valued at $73.6 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. Per the terms of the deal, Lockheed Martin will procure support equipment, labor, and Autonomic Logistics Information System hardware required to stand up the F-35 OCONUS MRO&U capability. 

Notably, the latest order includes 83.7% of the work for non-Department of Defense (DoD) participants, 8.1% for the U.S. Air Force, 4.1% for the U.S. Marine Corps and 4.1% for the U.S. Navy. Majority of the work will be executed in New South Wales, Australia and Cameri, Italy.

Lockheed Martinwill utilize fiscal 2018 aircraft procurement (Air Force, Marine Corps and Navy); and non-DoD participant funds to finance the task.

F-35 Lightning II Attributes

Lockheed Martin’s F-35 Lightning II is a single-seat, single-engine 5th Generation fighter aircraft, which comes with an advanced stealth feature combined with enhanced fighter speed and agility, fully fused advanced sensor information, weapons capacity and range, network-enabled operations and advanced sustainment.

The F-35’s ability to collect, analyze and share data is a powerful force multiplier enhancing all airborne, surface and ground-based assets in the battle space and enabling military personnel to effectively execute combat  missions. In fact, three variants of F-35 are set to replace five fighter jets for the U.S. Air Force, Navy and Marine Corps as well as a variety of fighter jets for at least 10 other countries.

Recent Developments

The F-35 program, being Lockheed Martin’s leading project, generated 24% of the company’s net sales in the first quarter of 2018. Moreover, higher sales from the F-35 program led to the Aeronautics segment’s revenue growth of 7% year over year to $4.4 billion.

Lockheed Martin, the Pentagon’s largest contractor, enjoys a steady flow of contracts each year and the second quarter of 2018 has not been any exception either. Recently, the company secured a contract worth $736 million to support the low-rate initial production of F-35 Lightning II aircraft of the 13th and 14th lot. Also, it won a$503.2 million modification contract for providing air vehicle initial spare parts in support of the F-35 program. Considering such order inflows along with the latest one, we expect the company’s Aeronautics unit to reflect similar solid performance in the coming quarterly results as well.

Moreover, production of F-35 is expected to rise in the years ahead, given the U.S. government’s current inventory objective of 2,456 aircraft for the Air Force, Marine Corps and Navy along with commitments from the company’s eight international partners and rising international demands.

Also, President Trump recently proposed fiscal 2019 defense budget that provisions for a spending plan of $21.7 billion on Aircraft. The budget proposal also allots $10.7 billion along with additional funding for the procurement of 97 F-35 Joint Strike Fighters. Evidently, these developments reflect solid growth prospects for Lockheed Martin’s F-35 program going ahead, which in turn are likely to boost the company’s profit margin.

Price Movement    

In a year’ time, Lockheed Martin’s stock has gained about 6.8% compared with the industry’s rally of 28.9%. The underperformance may have been caused by the intense competition that the company faces in the aerospace-defense space for its broad portfolio of products and services, both domestically as well as internationally.


Zacks Rank & Key Picks    

Lockheed Martin currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are Northrop Grumman NOC, Boeing BA and Wesco Aircraft Holdings WAIR. While Northrop Grumman sports a Zacks Rank #1 (Strong Buy), Boeing and Wesco Aircraft carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Northrop Grumman delivered an average positive earnings surprise of 13.87% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings moved up 5.65% to $16.44 in the last 90 days.

Boeing came up with an average positive earnings surprise of 29.51% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings climbed 4.4% to $14.67 in the last 90 days.

Wesco Aircraft Holdings’ long-term growth rate is pegged at 12%. The Zacks Consensus Estimate for 2018 earnings moved north 10% to 77 cents in the last 90 days.

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