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Raytheon-Lockheed JV Wins $186M Deal to Build Javelin Missiles

Zacks Equity Research

Javelin, a joint venture (JV) formed by Raytheon Company RTN and Lockheed Martin Corp. LMT, recently won a contract for full-rate production of the Javelin Weapon System. Work related to the deal is scheduled to be over by Aug 31, 2023.

Valued at $185.6 million, the contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL. Per the terms of the deal, the JV will also procure all up rounds, command launch unit retrofits, battery coolant units, Javelin outdoor trainers, outdoor trainer instruction station, tripods, Javelin vehicle launcher and electronics.

The entire task will be carried in Tuscon, AZ.

A Brief Note on Javelin

Javelin is the world's first one-man-portable, fire-and-forget, multipurpose missile system. This compact and lightweight missile was designed for one-soldier operations in all situations. It enhances direct-fire capability against armored vehicles, buildings and field fortifications. Armed forces all over the world have adopted Javelin.

Impressively, this combat-proven weapon system boasts a reliability rate of more than 94%.It can be deployed from multiple platforms and used in all weather, day or night operations.

Our View

While Raytheon is one of the well-positioned large-cap defense players in the United States, Lockheed Martin is the nation’s largest defense contractor. Both the companies are considered to be renowned missile makers in the United States.

With increasing demand for missile defense systems owing to rising worldwide geopolitical tensions, both these companies are witnessing notable contract flow from the Pentagon. The latest contract win is an instance of that, with Javelin being a preferred choice of the U.S. Army, Marine Corps and almost 15 allied militaries.

Furthermore, the current U.S. administration has brought in a revolutionary change in the nation’s defense space by consistently boosting its budget over the past couple of years, negating its predecessors’ budget sequestration policy. To this end, it is imperative to mention that the fiscal 2020 U.S. defense budget includes a spending plan of $13.6 billion for varied missile defense programs. Such favorable budget allocation is expected to benefit missile makers like Raytheon and Lockheed Martin.

Per Markets and Markets research firm, the global rocket and missile market is projected to rise from $55.5 billion in 2017 to $70 billion by 2022 at a CAGR of 4.74%. This solid growth opportunity should bode well for U.S. missile makers like Raytheon and Lockheed Martin, with America being the largest weapons supplier in the world.

Price Movement

In a year’s time, shares of Lockheed Martin have gained 16.7% compared with its industry’s 8.5% rise.

In the same period, shares of Raytheon have lost 1.7% against its industry’s 11% rise.

Zacks Rank & Key Picks    

Both Lockheed and Raytheon currently carry a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are L3Harris Technology Inc LHX and Wesco Aircraft Holdings, Inc. WAIR. While L3Harris sports a Zacks Rank #1 (Strong Buy), Wesco Aircraft carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

L3Harris has a long-term earnings growth rate estimate of 8%. The company delivered average positive earnings surprise of 4.21% in the last four quarters.

Wesco Aircraft’s long-term earnings growth rate estimate is pegged at 12%. The Zacks Consensus Estimate for 2019 earnings has moved 1.2% up to 85 cents over the past 60 days.

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
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