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Lockheed, Textron Get DoD Contracts

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Lockheed Martin Corp. (LMT) and Textron Inc. (TXT) received contracts from the U.S. Department of Defense (DoD) on Aug 20, 2013. The DoD granted a total of eight contracts. Among the other award winners were Raytheon Company (RTN), BAE Systems, Odyssey International Inc. and Berger Cummins Joint Venture. Lockheed was the winner in terms of the total number of contracts won, while Textron was the winner in dollar terms.

Lockheed received two contracts and won a major part of the third contract. Per the first contract worth $37.3 million, Lockheed will perform engineering work on the Aegis air-defense platform. The company will be working on this modification contract through Sep 2014.

Per the second contract, the company will supply a single AN/BVY-1 Integrated Submarine Imaging System, plus associated spare parts, to the U.S. Navy for $10.1 million.

The third contract worth $8.2 million was awarded to Hellfire Systems LLC, which is a wholly owned subsidiary of Lockheed Martin. The majority of the fund will be received by Lockheed Martin, while a small part will go to The Boeing Company (BA), the former partner of Lockheed in Hellfire LLC. Per the contract, Hellfire Systems will produce Hellfire II air-to-ground missiles for the United Arab Emirates. This firm-fixed-price, no-option, foreign military sales Hellfire contract modification now has a value of more than $886 million.

Meanwhile, Textron has received a contract worth $641 million for the production of 1,300 cluster bombs for Saudi Arabia. The contract runs through 2015.

Despite the threat of sequestration and defense budget cuts, the big defense players are not lacking in DoD contracts. Recently, Lockheed Martin received a contract worth $852.3 million from the DoD to provide the required equipment for F-35 fighter jets under Low Rate Initial Production Lot 6. This contract is slated for completion in Dec 2016.

Lockheed Martin is the largest U.S. defense contractor with a platform-centric focus that guarantees a steady inflow of follow-on orders from a leveraged presence in the Army, Air Force, Navy and IT programs. Going forward, we believe Lockheed Martin has significant upside potential based on its Intelligence Surveillance Reconnaissance, unmanned systems, force protection, cyber security, and missile defense programs.

On the other hand, Textron has a strong presence in diverse areas of business jets and other general aviation aircraft, helicopter, aircraft engines, golf carts, turf maintenance equipment, electronic test equipment and blow-molded fuel tanks.

Lockheed Martin presently retains a short-term Zacks Rank #2 (Buy) while Textron retains a short-term Zacks Rank #3 (Hold).

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