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Lockheed Martin Wins $90M Navy Deal to Support F-35 Program

Zacks Equity Research

Lockheed Martin Corp.’s LMT Aeronautics business unit recently secured a $90.3 million modification contract to identify and execute cost reduction initiatives for the overall cost reduction of the F-35 Lightning II Air System. The contract has been awarded by the Naval Air Systems Command, Patuxent River, MD.

Per the deal, the company will cater to the U.S. Air Force, U.S. Navy and the Marine Corps. Work related to this project will be performed in Fort Worth, TX, and is expected to be completed by June 2022.

F-35 Lightning II Attributes

The F-35 Lightning jet is a supersonic, multi-role fighter jet that represents a quantum leap in air-dominance capability, offering enhanced lethality and survivability in hostile, anti-access airspace environments. Its advanced stealth allows pilots to penetrate into areas without being detected by enemy radars. Currently, this jet is being used by the defense forces of the United States and other nations worldwide, mainly owing to its advanced stealth, integrated avionics, sensor fusion, superior logistics support and powerful integrated sensors capabilities.

Rising F-35 Program Demand

In October 2018, the Belgian Ministry of Defense selected the F-35 aircraft for its future fighter acquisition program, making it the 13th nation to join the F-35 program. Recently, Japan's National Security Council and Cabinet signaled continued support for the F-35, authorizing acquisition of a total 105 additional jets. Moreover, last month, the Republic of Singapore's Defense Minister announced the selection of F-35 as the aircraft most suitable to be their country's next-generation fighter.

These major developments reflect a solid rise in the global demand for the F-35 program, which in turn will boost the Aeronautics segments’ growth moving ahead.

Cost Reduction Initiatives to Benefit F-35 Program

Per a report by Avionics International, the F-35 aircraft currently costs between $94 million (F-35A) and $122 million (F-35B). Moreover, the sustainment cost projections for the program are as big a concern as production costs that is expected to be $1.5 trillion over its 55-year lifespan. Nevertheless, unit prices are anticipated to consistently decline and the overall price per jet is expected to drop below $100 million mark. For the F-35A program, Lockheed Martin intends to implement strategic cost reduction initiatives to bring down the unit price to $80 million by 2023. Notably, this latest contract win will enable the company to achieve this target. Such initiatives will significantly lower expenses going ahead, which in turn will provide a boost to revenues.

Price Movement

In a year’s time, Lockheed Martin’s stock has lost 13.3% compared with the industry’s 2.5% decline.

Zacks Rank & Key Picks

Lockheed Martin currently carries a Zacks Rank #3 (Hold). A few top-ranked companies in the same sector are The Boeing Company BA, Northrop Grumman Corporation NOC and Heico Corporation HEI.

While Boeing sports a Zacks Rank #1 (Strong Buy), Northrop Grumman and Heico carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boeing delivered average positive earnings surprise of 17.08% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has moved up 5.9% to $19.06 over the past 90 days.

Northrop Grumman delivered average positive earnings surprise of 19.93% in the trailing four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 9.82% to $19.56 over the past 90 days.

Heico Corporation has an expected long-term earnings growth rate of 12.10%. The Zacks Consensus Estimate for 2019 earnings has moved 4% north to $2.08 over the past 90 days.

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