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Lockheed Martin Wins $81M Deal From Missile Defense Agency

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Lockheed Martin Corp.’s (LMT - Free Report) Space Systems business unit recently secured a contract for procuring modified ballistic re-entry vehicle/re-entry vehicle separation modules.  Work related to this deal is expected to be over by Dec 31, 2022.

Details of the Deal

Valued at $80.6 million, the contract was awarded by the Missile Defense Agency, Huntsville, AL. The terms of the deal include development; production; storage and surveillance; maintenance of delivered hardware and software; and transportation of end items to the designated launch vehicle provider. Further this contract entitles Lockheed Martin to offer additional quantity, integration, analysis, and mission support.

The entire work in connection to this contract will be executed in Huntsville, AL. Fiscal 2017 research, development, test and evaluation funds will be utilized to partially finance the task and the rest will be funded incrementally.

A Brief Note on Re-Entry Vehicle

As part of the Ballistic Missile Defense System (BMDS), Lockheed Martin receives high-fidelity threat system ballistic missile performance requirements from the government and builds ballistic missile targets to meet those requirements and represent real-world threats. Such countermeasures are designed to increase the probability that the re-entry vehicle from the threat missile reaches its intended target.  These target practices are essential components of BMDS, as it tests the efficiency of the ballistic missiles and in turn keeps one ready in situations of adversities. Modified Ballistic Re-Entry Vehicle is one of the components of such target programs.

Our View

With increasing geopolitical tension across the globe, it has become a necessary mandate for nations to stock up their arsenals. For the United States, the frequent missile tests conducted by North Korea have been sending a strong message of hostility toward America for the past few months. As a result, the latter has been strengthening its missile stack in recent period. To strengthen its missile power, more target practices are needed which in turn has pushed the demand for such re-entry vehicles. The latest contract reaffirms this fact.

With Lockheed Martin being the largest defense contractor worldwide and given its combat-proven military equipments, we can expect more such contracts from the Pentagon, which in turn will substantially boost the company’s growth trajectory.

Moreover, the rocket and missile market is projected to grow from $55.53 billion in 2017 to $70 billion by 2022, at a CAGR of 4.74% during 2017-2022 (as per Markets and Markets). Further, the recently approved fiscal 2018 defense policy bill worth $700 billion also buoys optimism for investing in major defense stocks. Therefore the time is ripe to add defense primes, like Lockheed Martin, The Boeing Company (BA - Free Report) , Raytheon Company and Northrop Grumman Corporation (NOC - Free Report) in your watchlist.

Price Movement

Lockheed Martin’s stock has returned 19.9% over a year, underperforming the 30.1% rally of the industry it belongs to. This may have been caused by the company’s F-35 program, which despite being a prime project of the U.S. government has been repeatedly criticised for being overtly expensive.

 

 

Zacks Rank

Lockheed Martin currently carries 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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