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Lockheed Martin (LMT) Wins $79M Deal to Support LCS Program

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Lockheed Martin Corp.’s (LMT - Free Report) Rotary and Mission Systems (RMS) business division recently secured a $72.2-million modification contract to support sustainment of the Littoral Combat Ship Component Based Total Ship System (COMBATSS-21) and associated combat system elements. The contract was awarded by the Naval Sea Systems Command, Washington, D.C.

Majority of the work related to the deal will be conducted in Jarfalla, Sweden. The work is expected to be completed by May 2022.

COMBATSS-21 Specifics

Littoral Combat Ship Component Based Total Ship System – 21st Century, also known as COMBATSS-21, is a combat management system developed for the U.S. Navy's Freedom variant of the Littoral Combat Ship (LCS) based on the Aegis combat management system. The COMBATSS-21 includes the Aegis Common Source Library (CSL) and features open architecture. COMBATSS-21 includes the radar, gun weapon system, missile launcher, decoy launcher, and electronic warfare system. In addition to the U.S. Navy’s 16 Freedom-class LCSs, the combat management system has been selected for the FFG(X) class frigate.

What Favors Lockheed Martin?

The current U.S. administration recently presented the President’s FY 2022 discretionary funding request for the Department of Defense to the Congress. The administration has asked for $753 billion in national security funding, reflecting an increase of 1.6% that includes $715 billion for the Defense Department. The request includes an increased focus on shipbuilding, which involves the recapitalization of the nation’s strategic ballistic missile submarine fleet. We expect such spending provisions to benefit shipbuilding significantly. Such solid budgetary allocations should enable Lockheed Martin in the future to procure more significant contracts related to combat ships, like the latest one.

Looking ahead, per Technavio, the global naval shipbuilding market is expected to witness a CAGR of 3% over the 2020-2024 period to reach $14.36 billion. This, in turn, should potentially boost the demand for various assault ships, including the LCS combat ships and the COMBATSS-21. Such projections are expected to benefit Lockheed Martin, going forward.

Other Major Shipbuilders to Benefit

In line with the aforementioned favorable market projections, major U.S. defense players, especially those which manufacture warships, like Huntington Ingalls (HII - Free Report) and General Dynamics (GD - Free Report) , should also benefit, going ahead.

Huntington Ingalls is already known to specialize in the manufacturing of amphibious assault and expeditionary ships and provide more than 70% of ships to the U.S. Navy. Likewise, General Dynamics' National Steel and Shipbuilding Company (NASSCO) has an extensive history of designing, building and repairing ships for the U.S. government and commercial customers.

Zacks Rank, a Key Pick & Price Performance

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.

A better-ranked stock from the same sector is Raytheon Technologies Corporation (RTX - Free Report) , carrying a Zacks Rank #2 (Buy). Raytheon Technologies delivered a four-quarter earnings beat of 96.36%, on average. It currently has a solid long-term earnings growth rate of 12.9%.

In the past year, Lockheed Martin’s shares have gained 4.4% compared with the industry’s 24.8% growth.

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