The U.S. Department of Defense (DoD) dispersed 12 new contracts worth $521.1 million on Sep 5, 2013. The Javelin Joint Venture between Lockheed Martin Corp. (LMT - Analyst Report) and Raytheon Company (RTN - Analyst Report) became one of the awardees and received a $67.7 million contract.
Per the contract, the company will supply 260 Javelin rounds for the U.S Marine Corps as well as for the militaries of Jordan, Indonesia and Oman for a purchase price of $0.26 million per missile round. The contract also calls for the unit to provide command launch unit retrofits for the missile's launchers.
This was the second partial-foreign military sales contract received by the joint venture in the past four months. In May this year, the joint venture had received a fixed-price partial foreign military sales contract worth $53.4 million for the supply of Javelin Block I Tactical Missile Rounds for the Army, Marine Corps, Jordan and Indonesia. The current contract is approximately 27% bigger than the previous contract.
The FGM-148 Javelin is a man-portable fire-and-forget anti-tank missile. This enables the user to maneuver after firing to evade a counter strike. The missile is ejected from the launcher so that it reaches a safe distance from the operator before the main rocket motors ignite.
Despite the threat of sequestration, the DoD has continued to award contracts to defense players. On Aug 27, 2013, the DoD offered contracts worth $7.59 billion. Among the contenders was Raytheon which clinched a $15.0 million modification contract for Cooperative Engagement Capabilities (“CEC”) production to the U.S. Navy. The contract is set to run through Oct 2014. Defense players like General Dynamics Corp. (GD - Analyst Report) and Lockheed Martin were the other key contract gainers.
Given the declining trend in the U.S. defense spending, Raytheon is one of the best-positioned companies among the large-cap defense players due to its non-platform-centric focus. The president's defense budget for FY14 would maintain or augment funding for most of Raytheon’s biggest programs, which include the Standard Missile-3 (SM-3) missile interceptor, the Advanced Medium-Range Air to Air Missile and the SM-2 and SM-6 ship defense missiles. Other programs include AIM-9X Sidewinder, Evolved SeaSparrow, Javelin anti-tank missile, Joint Standoff Weapon, Rolling Airframe Missile, Small Diameter Bomb II and Tactical Tomahawk.
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 the Obama administration’s focus on Intelligence Surveillance Reconnaissance, unmanned systems, force protection, cyber security, and missile defense.
The U.S. aerospace and defense stocks have lately been hit by fears of automatic budget cuts resulting from sequestration. Now that President Obama is increasingly gaining support for a military strike against Syria from both Republican and Democratic leaders, heady days may finally be back for defense stocks. Both the companies presently retain a short-term Zacks Rank #2 (Buy). Another defense stock that can be taken into consideration is Northrop Grumman Corp. (NOC - Analyst Report) with a Zacks Rank #2 (Buy).