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Lockheed Martin (LMT) Secures $47M Space Systems Contract

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Defense giant Lockheed Martin Corp.’s (LMT - Free Report) Space Systems business unit secured a contract from the Pentagon to offer engineering, development and sustainment support. Work related to this deal will be executed at Kirtland Air Force Base, NM, and Schriever Air Force Base, CO.

Valued at $47 million, this contract was awarded by the Space and Missile Systems Center. Per the terms of the contract, Lockheed Martin will provide engineering and operational services to support Space and Missile Systems Center Ground systems and Space Operations division. The company expects to complete the work by Jan 5, 2019.

A Brief Note on Space Systems Unit

The Space Systems segment designs and develops satellites, strategic and defensive missile systems and space transportation systems like the Trident II D5 Fleet Ballistic Missile (FBM), Space Based Infrared System (SBIRS), GPS-III, Geostationary Operational Environmental Satellite R-Series (GOES-R) and more. Space Systems is responsible for various classified systems and services in support of vital national security systems.

In 2016, Lockheed Martin raised its ownership interest in the AWE Management Limited (AWE) venture, which operates the U.K.’s nuclear deterrent program, by 18% and aligned AWE with its Space Systems unit. During the fourth quarter, this venture contributed $310 million to the net sales of the Space Systems segment. In addition, Space Systems has international contracts with Saudi Arabia and Japan to design and manufacture geostationary communication satellites using the A2100 satellite platform, which are expected to boost growth at this unit.

Our View

With the rapid rise in terror attacks, geospatial intelligence is gaining popularity. Lockheed Martin’s extensive systems help the Intelligence Community transform raw imagery and sensor data into layered, detailed maps that support troops on the battlefield, global intelligence agents, and emergency responders at the U.S.

Owing to the unlikelihood of any change in the geopolitical scenario, prominent defense contractors like Lockheed Martin are expected to win more defense deals from the government in the days ahead. A quick look at the company’s latest quarterly numbers also reflects the same. In particular, Lockheed Martin’s Space Systems segment generated revenues of $2.8 billion in the fourth quarter of 2016, reflecting 20.2% of the total revenue.

Going forward, we expect Lockheed Martin to maintain this trend of generating solid performance in the upcoming quarters as well. Moreover, the company’s anticipation to generate more than $5.7 billion in cash from operations during 2017, as against $5.2 billion at 2016-end, buoys optimism.

However, Lockheed Martin underperformed the Zacks categorized Aerospace/Defense industry in the last one year, with the company’s gain of 22% being lower than the industry’s addition of 25.1%. This might have been triggered by intense competition from some of the largest defense primes in the U.S., particularly The Boeing Company (BA - Free Report) , Northrop Grumman Corp. (NOC - Free Report) and Embraer S.A. (ERJ - Free Report) . Also, the current quarter EPS estimates for the company have come down by 5 cents over the past 60 days, which reflects investors’ reluctance to consider the stock as a suitable investment option for the time being.

Zacks Rank

Lockheed Martin currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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