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Lockheed (LMT) Wins Contract to Support AEGIS Combat Systems

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Lockheed Martin Corporation’s (LMT - Free Report)   segment, Rotary and Mission Systems (“RMS”), recently secured a modification contract for its AEGIS combat system. The award has been given by the Naval Sea Systems Command, Washington, DC.

Details of the Deal

Valued at $34.1 million, the contract is expected to be completed by January 2025. Per this deal, Lockheed Martin will exercise options for AEGIS development and test sites operation and maintenance at the combat systems engineering development site, SPY-1A test facility and naval systems computing center.

The work related to this contract will be executed in Moorestown, NJ.

What’s Favoring Lockheed Martin?

Nations across the globe are fortifying their defense spending on military weapons and arsenals as they look to strengthen their defense capabilities. This also includes augmented spending on navy combat vehicles for enhanced sea warfare capabilities.

In this context, it is imperative to mention that LMT’s AEGIS Combat System is the U.S. Navy’s most modern surface combat system. It is also the first fully integrated combat system built to defend against advanced air and surface threats.

Such features are likely to have been boosting demand for LMT’s AEGIS Combat System, which, in turn, led to the latest contract win for the company. Among recent developments for this program, in September 2023, the U.S. Navy selected Lockheed Martin to design integrated warfare system architecture and capabilities so that software updates can be delivered in real-time across the Navy’s surface fleet of Aegis destroyers, cruisers and frigates, plus carriers and amphibious ships. The AEGIS system also enjoys solid demand in the international market among the U.S. allies.

The recent contract win should continue to boost the company’s order book in the long run. This is likely to enhance LMT’s revenue generation prospects for its RMS unit, which constituted 24% of the company’s total revenues in 2023.

Growth Prospects

As demand for an efficient security system that can strengthen naval sea warfare capabilities rises, so does the prospects of the naval combat vehicle market. Per a report from Mordor Intelligence firm, the naval combat systems market is projected to witness a CAGR of more than 2.5% during the 2024-2029 period. This market growth opportunity should boost Lockheed Martin’s operating results.

Notably, Lockheed’s RMS unit designs, manufactures, services and supports various surface ships, missile defense systems, radar systems, laser systems, mission and combat systems, and command and control mission solutions. Its major programs include the AEGIS combat system, Littoral Combat Ship and Multi-Mission Surface Combatant.

Other defense majors poised to benefit from the expanding naval combat systems market are BAE Systems (BAESY - Free Report) , General Dynamics (GD - Free Report) and Huntington Ingalls Industries (HII - Free Report) .

BAE Systems designs, builds, commissions, repairs and supports a full range of complex surface ships, submarines and command and combat systems. Its INTeACT combat management systems provide mission-critical capabilities and a vital advantage in combat systems. Its Queen Elizabeth Class Aircraft Carriers are the largest warships ever constructed in the United Kingdom.

BAESY boasts a long-term (three-to five-years) earnings growth rate of 12.9%. The Zacks Consensus Estimate for 2024 sales indicates growth of 34.1% from the prior-year figure.

General Dynamics’ Marine Systems segment is the leading designer and builder of nuclear-powered submarines and a leader in surface combatant and auxiliary ship design and construction for the U.S. Navy. A few notable awards won by GD in fourth-quarter 2023 are $840 million max potential for maintenance and modernization of two DDG-51 destroyers and $215 from the Navy for long-lead materials for Block VI Virginia-class submarines.

GD boasts a long-term earnings growth rate of 10.8%. The Zacks Consensus Estimate for 2024 sales implies growth of 8.9% from the prior-year figure.

Huntington Ingalls’ Ingalls Shipbuilding and Newport News Shipbuilding (NNS) segments design and construct non-nuclear ships for the U.S. Navy and the U.S. Coast Guard, including amphibious assault ships, expeditionary warfare ships, surface combatants and national security cutters. On Feb 23, 2024, HII launched the Virginia-class submarine Massachusetts (SSN 798) into the James River at the company’s NNS division.

HII boasts a long-term earnings growth rate of 6.5%. The Zacks Consensus Estimate for 2024 sales implies growth of 2% from the prior-year figure.

Price Performance

In the past year, shares of LMT have lost 10% compared with the industry’s 10.5% decline.

Zacks Investment Research
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Zacks Rank

Lockheed Martin currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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