Lockheed Signs JV Deal

Lockheed Martin Corp.’s (LMT - Analyst Report) wholly-owned subsidiary, Applied NanoStructured Solutions LLC (ANS) and Owens Corning Inc. (OC - Snapshot Report) have signed a joint development agreement to support the commercialization of carbon-enhanced reinforcements.
 
Under the agreement, Lockheed Martin plan to combine the carbon infusion technology of ANS with Owens Corning's reinforcements expertise to create a family of next-generation composite materials. The companies expect the carbon-enhanced reinforcements to be scalable to meet the demands of large-volume applications and provide mechanical properties with customizable electrical and thermal conductivity.
 
Owens Corning is a leading global producer of residential and commercial building materials, glass-fiber reinforcements and engineered materials for composite systems. Founded in 1938, Owens Corning is a market-leading innovator of glass-fiber technology with sales of $4.8 billion in 2009 and about 16,000 employees in 28 countries on five continents.
 
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. Lockheed’s traditional defense focus appears strong, with increasing interest from domestic and international customers. The company mainly competes with Boeing Co. (BA - Analyst Report), General Dynamics Corp. (GD - Analyst Report) and Northrop Grumman Corp. (NOC - Analyst Report).
 
Going forward, we believe Lockheed Martin has significant upside potential based on the Obama Administration’s focus on Smart Power application and cyber security. Lockheed Martin finished the first quarter of fiscal 2010 with $75 billion of backlog.
 
Lockheed Martin has one of the strongest balance sheets among its peers with a low long-term debt-to-capitalization of 55.6% after first quarter-end 2010 (Zacks industry average was 93.2%). Lockheed continues to be a strong cash generator with its annual operating cash flow touching approximately $3.2 billion during fiscal 2009. Management is also prudent in returning a substantial portion of its free cash flow to shareholders through share repurchases and incremental dividends.
 
However, we believe all the above-mentioned positives have already been taken into account in the current share price of Lockheed Martin. This justifies the Zacks Rank #3, which translates into a short-term “Hold” recommendation. Considering the company’s business model and fundamentals, we have a long-term “Neutral” recommendation on the stock.

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