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The U.S. Department of Defense (DoD) disbursed 64 separate contracts worth $3.51 billion on Sep 25, 2013. One of the awardees, Lockheed Martin Corp. (LMT - Analyst Report) received two contracts worth $314 million.

The company received a cost-plus-fixed-fee, non-option eligible, non-multiyear, indefinite-delivery/indefinite-quality contract worth $306.5 million for the supply of persistent threat detection systems (PTDS) and related technical support services and material to the U.S. Army.

The U.S. Army has been using PTDS since 2004. PTDS consists of an aerostat, tether, mobile mooring platform, mission payloads, ground control shelter, maintenance and officer shelter and power generators and site-handling equipment. With its multi-mission sensors, PTDS provides long endurance intelligence, surveillance, reconnaissance and communications to the forces in Afghanistan and Iraq.
The other cost-plus-fixed-fee, firm-fixed-price contract worth $7.5 million calls for the integration of an AN/TPS-59A(V)3 Radar System Netra T4-1 Server Mod Kit. AN/TPS-59 is a phased array, three-dimensional, transportable air search radar that is used for tactical ballistic missile defense by the U.S. Marine Corps.

The industry is facing the threat of sequestration. Per a media report, the Pentagon would have to curtail its budget by approximately $20 billion in fiscal 2014 versus fiscal 2013, if mandatory budget cuts remain in effect. We however note that big contractors like Lockheed, The Boeing Company (BA - Analyst Report) and General Dynamics Corp. (GD - Analyst Report) have the ability to weather the downturn.

Indeed with its steady flow of contracts from the Army, Air Force, Navy and IT programs, Lockheed is the largest U.S. defense contractor with a platform-centric focus.  Recently, the company received a $3.92 billion contract for the production of Terminal High Altitude Area Defense (THAAD) missiles for the U.S. armed forces and also for United Arab Emirates. The contract definitizes Lot 4 production as well as includes a priced option for Lot 5.

Going forward, we expect the company to benefit from a strong defense focus on a number of its platform programs, such as the C-130 Hercules & C-5 Galaxy transport aircraft, F-16 Fighting Falcon multi-role jet, MH-60 Helicopters, the Advanced Extremely High Frequency & the Global Positioning Satellite III system satellites, the Littoral Combat Ship, the Aegis Weapons System for mobile and sea-based missile defense and the THAAD system. The company presently retains a short-term Zacks Rank #2 (Buy). We also have Northrop Grumman Corp. (NOC - Analyst Report) in the space with a comparable Zacks Rank #2.

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