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Lockheed Wins $265M Deal to Aid Korea's F-35 Jet Program

Zacks Equity Research

Lockheed Martin Corp.’s LMT Aeronautics business unit recently secured a modification contract to support the F-35 Lightning II Joint Strike program. The deal has been awarded by the Naval Air Systems Command, Patuxent River, Maryland.

Details of the Deal

Valued at $264.7 million, the contract will cater to the Korean government. Under the terms of the agreement, the company will offer additional operation and technical services to aid Korea’s F-35 Lightning II program.

Work related to the deal is scheduled to be over by June 2020 and will be carried out in Fort Worth, TX.

A Brief Note on F-35 Program

The F-35 Lightning 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. It is being used by the defense forces of the United States and 11 other nations chiefly owing to its advanced stealth, integrated avionics, sensor fusion, superior logistics support and powerful integrated sensors capabilities.

What Favors Lockheed Martin?

The F-35 is Lockheed Martin’s largest program that generates more than 25% of its total sales. The program fueled annual revenue growth by 19.6% at the company’s Aeronautics division. Keeping up with this trend, we may expect the latest contract win to enable the Aeronautics unit to deliver similar or even better performance in the upcoming quarters.

Meanwhile, production of F-35 is expected to increase 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, overseas customers and rising demand for military jets globally.

Taking into account the F-35 program’s solid estimated production rate, the latest contract win involving technological enhancement of these jets should further provide a boost to this program in the coming days.

These apart, the fiscal 2019 defense budget provisioned for a spending plan of $21.7 billion on aircraft, which is encouraging. In particular, the budget hinted at a prospective improvement in Lockheed Martin’s F-35 Joint Strike Fighter program, which has been allotted $10.7 billion and additional funding for the procurement of 97 F-35 Joint Strike Fighters.

Such developments reflect solid prospects for Lockheed Martin’s F-35 program, which are likely to boost the company’s profit margin.

Price Movement

In a year’s time, shares of Lockheed Martin have lost 11.3% compared with the industry’s 4.2% decline.

Zacks Rank & Key Picks    

Lockheed Martin currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector are Spirit Aerosystems Holdings SPR, Textron Inc. TXT and HEICO Corporation HEI. While Spirit Aerosystems sports a Zacks Rank #1 (Strong Buy), Textron and HEICO carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Spirit Aerosystems’ long-term earnings growth rate is projected at 7.80%. The Zacks Consensus Estimate for 2019 earnings has moved 3.7% north to $7.56 over the past 90 days.

Textron delivered average positive earnings surprise of 19.61% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 4.3% to $3.67 over the past 60 days.

HEICO Corporation’s long-term earnings growth rate is projected at 12.10%. The Zacks Consensus Estimate for 2019 earnings has moved 7% up to $2.14 over the past 90 days.

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
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