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Lockheed Acquires Chandler/May

BA GD LMT

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Lockheed Martin Corporation (LMT - Analyst Report) announced the acquisition of Chandler/May Inc., an unmanned aerial systems manufacturer. Terms of the agreement, however, remained undisclosed. Chandler/May, with facilities in Alabama and California, will become part of Lockheed's Mission Systems & Sensors business. Lockheed Martin’s prudent acquisition of Chandler/May would expand its expertise in the design, development, integration, manufacturing, and support of fully integrated mission critical systems for unmanned aerial systems (“UAS”) and Command, Control, Communications, Computers, Intelligence, Surveillance, Reconnaissance (“C4ISR”) missions.

Based in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company, engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. Key growth drivers of the company are its focus on debt repayment, its ongoing share repurchase program and the incremental dividend. Some of Lockheed Martin’s main competitors are The Boeing Company (BA - Analyst Report) and General Dynamics Corporation (GD - Analyst Report).
    
Lockheed Martin recently reported strong third quarter numbers with earnings of $2.26 per share beating the Zacks Consensus Estimate of $1.85. With this the company also beat the year-ago earnings of $2.06 per share.

Lockheed Martin reported quarterly revenue of $11.9 billion, beating the Zacks Consensus Estimate of $11.1 billion. However, the figure fell below the year-ago quarterly revenue of $12.1 billion.

During the third quarter, the company repurchased 3.3 million shares at a cost of $294 million. In September this year, the company increased its quarterly dividend rate to $1.15 per share, up approximately 15 cents from the current payout of approximately $1.00 per share. The proposed hike would bring the annual dividend to $4.60, up 15% from the previous payout. The increased quarterly dividend will be paid on December 28, 2012 to shareholders of record at the close of business on December 3, 2012.

Going forward, we believe Lockheed Martin has significant upside potential based on the Obama administration’s focus on Intelligence Surveillance Reconnaissance (“ISR”), unmanned systems, force protection, cybersecurity, and missile defense. It already sits on an order backlog of approximately $75.6 billion at the end of the first nine months of 2012.

Further, we expect shareholder return to continue to be shored up by the company’s focus on debt repayment, its ongoing share repurchase program and the incremental dividend.

However, we are concerned about the budget deficits and political uncertainty that make future defense budgets vulnerable to cutbacks. Lockheed Martin presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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