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Will Lockheed Martin Lose $11B F-35 Deal for Late Deliveries?
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Per a recent article released by Bloomberg, Lockheed Martin Corp. (LMT - Free Report) is set to receive a potential $11-billion contract from the Pentagon for its next-generation F-35 aircraft. Once secured, this will be the company's biggest contract for its F-35 program.
The U.S. Department of Defense expects to award the company an $11-billion contract by early September for delivering 141 F-35 aircraft to the United States and its foreign allies, as part of its 11th production batch.
It is imperative to mention in this context that Pentagon is willing to offer this contract to Lockheed Martin, despite production flaws observed in the F-35 program that eventually led to delayed deliveries of jets (as per Bloomberg).
Our View
The F-35 program is Lockheed Martin’s largest program that generated 27% of its total consolidated net sales in second-quarter 2018. Moreover, the company’s Aeronautics division generated solid year-over-year revenue growth of 8.1%, primarily driven by higher net sales of approximately $370 million for the F-35 program. If the company succeeds in acquiring the $11-billion deal, we may expect the Aeronautics unit to reflect similar or even better performance in the upcoming quarterly results.
However, one might remain skeptical regarding the company’s success in securing this deal, considering the recent delayed delivery data. Evidently, as of Jun 24, 2018, Lockheed Martin was successful in delivering 305 aircraft out of the 501 jets it promised to deliver to its U.S. and overseas customers.
Nevertheless, we must remember that such a production backlog is common in the defense space, especially for crucial programs like F-35, considering the size and complexity of such programs. So, a backlog should not come in the way of winning a contract for a combat-proven, well-acknowledged defense program like F-35.
Further, Lockheed Martin’s spokesperson, Nelson clamed in an email that the company has been able to lower production costs, reduce build time and improve overall quality of the F-35 program, as it increases production each year. Going by the reported figures, production-based defects dropped significantly with each lot, and time taken on reworking and repairs also reduced by 79%, since the first production contract. Moreover, the company intends to deliver 131 F-35 aircraft in 2019, reflecting a 44% increase from the current year's expected deliveries.
Considering these initiatives adopted by the company to improve efficiency of the F-35 program along with rising demand for these jets worldwide, we may very well expect Lockheed Martin to successfully secure the $11 billion contract, next month.
Price Movement
Lockheed Martin’s stock improved about only 6.3% in the last year compared with the industry’s growth of 22.6%. 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 & Stocks to Consider
Lockheed Martin currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the same sector are Aerojet Rocketdyne Holdings , Engility Holdings and Huntington Ingalls Industries (HII - Free Report) .
Aerojet Rocketdyne came up with an average positive earnings surprise of 9.27% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 30.9% to $1.27 in the last 90 days.
Engility Holdings delivered an average positive earnings surprise of 19% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 18.9% to $2.02 in the last 90 days.
Huntington Ingalls Industries came up with an average positive earnings surprise of 9.48% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 3.8% to $17.25 in the last 90 days.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Will Lockheed Martin Lose $11B F-35 Deal for Late Deliveries?
Per a recent article released by Bloomberg, Lockheed Martin Corp. (LMT - Free Report) is set to receive a potential $11-billion contract from the Pentagon for its next-generation F-35 aircraft. Once secured, this will be the company's biggest contract for its F-35 program.
The U.S. Department of Defense expects to award the company an $11-billion contract by early September for delivering 141 F-35 aircraft to the United States and its foreign allies, as part of its 11th production batch.
It is imperative to mention in this context that Pentagon is willing to offer this contract to Lockheed Martin, despite production flaws observed in the F-35 program that eventually led to delayed deliveries of jets (as per Bloomberg).
Our View
The F-35 program is Lockheed Martin’s largest program that generated 27% of its total consolidated net sales in second-quarter 2018. Moreover, the company’s Aeronautics division generated solid year-over-year revenue
growth of 8.1%, primarily driven by higher net sales of approximately $370 million for the F-35 program. If the company succeeds in acquiring the $11-billion deal, we may expect the Aeronautics unit to reflect similar or even better performance in the upcoming quarterly results.
However, one might remain skeptical regarding the company’s success in securing this deal, considering the recent delayed delivery data. Evidently, as of Jun 24, 2018, Lockheed Martin was successful in delivering 305 aircraft out of the 501 jets it promised to deliver to its U.S. and overseas customers.
Nevertheless, we must remember that such a production backlog is common in the defense space, especially for crucial programs like F-35, considering the size and complexity of such programs. So, a backlog should not come in the way of winning a contract for a combat-proven, well-acknowledged defense program like F-35.
Further, Lockheed Martin’s spokesperson, Nelson clamed in an email that the company has been able to lower production costs, reduce build time and improve overall quality of the F-35 program, as it increases production each year. Going by the reported figures, production-based defects dropped significantly with each lot, and time taken on reworking and repairs also reduced by 79%, since the first production contract. Moreover, the company intends to deliver 131 F-35 aircraft in 2019, reflecting a 44% increase from the current year's expected deliveries.
Considering these initiatives adopted by the company to improve efficiency of the F-35 program along with rising demand for these jets worldwide, we may very well expect Lockheed Martin to successfully secure the $11 billion
contract, next month.
Price Movement
Lockheed Martin’s stock improved about only 6.3% in the last year compared with the industry’s growth of 22.6%. 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 & Stocks to Consider
Lockheed Martin currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the same sector are Aerojet Rocketdyne Holdings , Engility Holdings and Huntington Ingalls Industries (HII - Free Report) .
While Aerojet Rocketdyne Holdings sports a Zacks Rank #1 (Strong Buy), Engility Holdings and Huntington Ingalls carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Aerojet Rocketdyne came up with an average positive earnings surprise of 9.27% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 30.9% to $1.27 in the last 90 days.
Engility Holdings delivered an average positive earnings surprise of 19% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 18.9% to $2.02 in the last 90 days.
Huntington Ingalls Industries came up with an average positive earnings surprise of 9.48% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 3.8% to $17.25 in the last 90 days.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>