Lockheed Wins Air Force Contract

Lockheed Martin Corporation (LMT - Analyst Report) bagged a $421.1 million contract from the U.S. Air Force for upgrading the Air Force’s command and control center, Weapon System Integrator. The company will provide systems engineering, integration, modernization, maintenance, management and contingency support.

In recent times, Lockheed Martin has witnessed the cancellation of quite a few prominent programs such as the TSAT Mission Operations System (TMOS) contract, F-22 Raptor program and the VH-71 Presidential Helicopter (VH-71) program. Lockheed’s high-cost platform programs were the prime targets of the Obama Administration for budget cuts.

The addition of $421.1 million would boost the beleaguered backlog of the company, which reduced to $79.2 billion after the first half of the fiscal 2009 from $80.9 billion after year-end fiscal 2008.

Lockheed Martin remains a key player within the military space and continues to benefit from strong defense spending. The company’s customer base includes the U.S. government, foreign governments and other commercial buyers.

The company’s traditional defense focus appears strong, with increasing interest from domestic and international customers. In addition, management intends to explore strong business opportunities beyond the traditional defense market, specifically in the areas of civil, governmental and commercial space businesses.

Going forward, we believe Lockheed Martin has significant upside potential based on strong defense outlays throughout 2009–10, above-industry average return-on-invested-capital, and expanding product lines. However, these are offset by risks related to key projects execution, fate of high cost platform programs, lower top-line results in the Aeronautics segment, higher pension liability, and lower delivery of F-16s in recent times.

We maintain our market Neutral recommendation on the shares.

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