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Lockheed Martin Wins $503M Deal for F-35 Lightning II Spares

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Lockheed Martin Corp.’s (LMT - Free Report) Aeronautics division recently won a $503.2 million modification contract for providing air vehicle initial spare parts in support of the F-35 program. The contract was awarded by the Naval Air Systems Command, Patuxent River, MD.

Details of the Deal

Per the deal, Lockheed Martin will provide initial spares that include F-35 Lightning II deployment spares packages, afloat spares packages and associated consumables. The spare parts would be used for supporting air vehicle delivery schedules for the U.S. Air Force, Navy, Marine Corps and non-Department of Defense (DoD) participants.

The modification includes 21% of the work for the U.S. Air Force, 14% for the U.S. Navy, 18% for the U.S. Marine Corps and 47% for the non-DoD participants.

Work related to the deal will be performed in Fort Worth, TX; Samlesbury and Cheltenham, the United Kingdom; Papendrect, The Netherlands and various other locations across the United States. The tasks
are expected to get completed in December 2023. Lockheed Martin will utilize fiscal 2018 aircraft procurement (Air Force, Marine Corps and Navy) and non-DoD participant funds for completing the task.

Benefits of F-35 Lightning II Jet

The F-35 Lightning is a supersonic, multi-role fighter jet, which represents a quantum leap in air-dominance capability offering enhanced lethality and survivability in hostile, anti-access airspace environments. Its advanced stealth allows pilots to penetrate into areas without being detected by enemy radars.

The F-35 jet is being used by the defense forces of the United States and 11 other nations, worldwide, largely due to its advanced stealth, integrated avionics, sensor fusion, superior logistics support and powerful integrated sensors capabilities. Looking ahead, the program’s domain is expected to witness a robust expansion across the globe.

What’s Favoring Lockheed Martin?

The F-35 program is Lockheed Martin’s largest program, which generated 24% of its total net sales in first-quarter 2018. Moreover, higher sales from the F-35 program, during the same time frame, enabled its Aeronautics segment’s revenue to grow 7% year over year to $4.4 billion. As of May 14, 2018, the company successfully delivered more than 290 F-35 jets to the United States and its allies.

Lockheed Martin, being one of the Pentagon’s prime contractors, enjoys a steady flow of contracts each year and the second quarter of 2018 has not been any exception either. Recently, the company secured a contract worth $736 million to support the low-rate initial production of F-35 Lightning II aircraft of the 13th and 14th lot. Considering the frequent order inflows along with the latest one, we expect its Aeronautics unit to reflect similar solid performance in the coming quarterly results as well.

Moreover, production of F-35 is expected to rise in the years ahead, given the U.S. government’s current inventory objective of 2,456 aircraft for the Air Force, Marine Corps and Navy along with commitments from the company’s eight international partners and rising international demands. Such projected estimations will certainly lead to an increase in the production of air vehicle spares and associated consumables for this aircraft.

Furthermore, the fiscal 2019 defense budget proposal, announced by Trump this February, provisions for a spending plan of $21.7 billion on aircraft. The budget proposal hints at a prospective increase in Lockheed Martin’s F-35 Joint Strike Fighter program that has been allotted $10.7 billion along with additional funding for the procurement of 97 F-35 Joint Strike Fighters. Evidently, these developments reflect solid growth prospects for Lockheed Martin’s F-35 program, going ahead, which in turn are likely to boost the company’s profit margin.

Price Movement    

Lockheed Martin’s stock has improved about 9.9% in the last one year compared with the industry’s growth of 34.6%. The underperformance may have been caused by the intense competition that the company faces in the aerospace-defense space for its broad portfolio of products and services, both domestically as well as internationally.



Zacks Rank & Key Picks    

Lockheed Martin currently carries a Zacks Rank #3 (Buy). A few better-ranked stocks in the same space are Northrop Grumman (NOC - Free Report) , Boeing (BA - Free Report) and Wesco Aircraft Holdings .

While Northrop Grumman sports a Zacks Rank #1 (Strong Buy), Boeing and Wesco Aircraft carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Northrop Grumman delivered an average positive earnings surprise of 13.87% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 5.65% to $16.44 in the last 90 days.

Boeing came up with an average positive earnings surprise of 29.51% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 4.4% to $14.67 in the last 90 days.

Wesco Aircraft Holdings’ long-term growth rate is pegged at 12%. The Zacks Consensus Estimate for 2018 earnings has risen by 10% to 77 cents in the last 90 days.

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