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Defense giant Lockheed Martin Corp. (LMT - Analyst Report) clinched a whopping $1.9 billion contract from the U.S. Air Force to complete production of the fifth and sixth Geosynchronous Earth Orbit (GEO) satellites. In addition, Lockheed received a slew of small-ticket contracts totalling $95.5 million from the U.S. Navy yesterday
 
The satellites GEO-5 and GEO-6 come under the military’s Space Based Infrared System (SBIRS) program of which Lockheed is the prime contractor. The tasks related to the contract will be carried out in Sunnyvale, CA and will run through Sep 30, 2022. 
 
The SBIRS program is equipped with advanced global missile launch identification capabilities. It increases intelligence gathering capacity, offers support to ballistic missile system as well as boosts situational awareness for warfighters in a battlefield.
 
The initial contract for the GEO-5 and GEO-6 satellites was handed out in 2012. It required Lockheed to conclude non-engineering activities and procurement of selected long lead parts. The deal was further extended in 2013 for the purchase of additional long lead parts. This is the third phase of the procurement contract, a strategy through which Lockheed aims to reduce expenses and cycle time for the GEO-5 and GEO-6 satellites while still providing fighters with enhanced data.
 
The SBIRS program has offered superior infrared space surveillance services to the U.S. government with the GEO-1 and GEO-2 satellites performing remarkably well. The GEO-3 is slated for delivery by the end of 2014 and is currently undergoing various tests while GEO-4 recently went into final assembly, integration and testing.
 
Although the SBIRS program was beset with cost worries, the Department of Defense (DoD) retained the program as it was critical to the country’s defense structure. The program seems to have struck a good balance between affordability and requirement and did not see any significant cut in the FY15 defense budget. 
 
Given the vital role played by satellites in the military space, Lockheed Martin is looking to bolster its satellite product coverage by increasingly investing in R&D and acquisitions. In May 2014, Lockheed purchased Astrotech Space Operations for $61 million, a company specializing in prelaunch processing of satellites. 
 
Going forward, Lockheed Martin will remain well-positioned in the industry given its string of big-ticket contract wins. The Pentagon will likely retain most of its key programs from Lockheed Martin. Recently, Lockheed’s Space division received a $915 million contract from the DoD for building a radar system to track space junk. 
 
Currently, the company carries a Zacks Rank #2 (Buy). Other similar ranked defense operators include General Dynamics Corp. (GD - Analyst Report), Embraer SA (ERJ - Analyst Report) and Liedos Holdings Inc. (LDOS - Snapshot Report).

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