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Will Lockheed-Boeing's ULA Gain from the $861M Deal?


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United Launch Services won a modification contract from the U.S. Air Force for launch capability for the Delta IV and Atlas V families of space rockets. Atlas V and Delta IV form a part of strategic U.S. space initiatives to offer advanced launch solutions and assured access to space with 100% mission success.

Notably, United Launch Services is a subsidiary of United Launch Alliance (ULA) – a 50-50 joint venture owned by defense prime Lockheed Martin Corp. (LMT - Analyst Report) and aircraft major The Boeing Company (BA - Analyst Report) , which offers the U.S. government with Atlas and Delta – two cost efficient families of Evolved Expendable Launch Vehicles (EELV).

Details of the Deal

Valued at $860.8 million, this contract was awarded by Space and Missile Systems Center, Los Angeles Air Force Base, CA. Work related to this contract, scheduled to be over by Sep 30, 2017, will be performed at Centennial, CO; Vandenberg Air Force Base, CA; and Cape Canaveral Air Station, FL. The deal will utilize fiscal 2015 missile procurement and fiscal 2016 space procurement funds.

As per terms of the agreement, the contract will offer launch capability options, including mission integration, base and range support, maintenance commodities, Delta depreciation, and Atlas depreciation. Terms of this deal also include services like mission assurance, program management, systems engineering, integration of the space vehicle with the launch vehicle, launch site and range operations, and launch infrastructure maintenance and sustenance.


Qualities of Atlas V and Delta IV

Built modularly with flight-proven elements, Atlas V offers maximum flexibility, capability and reliability to ULA’s customers and has logged more than 600 launches to date.Since their debut in August 2002, the Atlas V family of EELV has achieved 100% mission success in launches and represents the latest evolutionary versions of the Atlas launch system.

On the other hand, the Delta IV family of launch vehicles offers manufacturing efficiency and streamlined mission and vehicle integration, which meets the customer requirements to launch high-priority U.S. Air Force (USAF), National Reconnaissance Office (NRO), NASA as well as commercial payloads to orbit. Notably, the Delta IV launch system is available in five configurations and each of them can serve current as well as future satellite programs.

Our View

Formed in December 2006, ULA brings together two of the launch industry’s most experienced and successful teams – Atlas and Delta – which jointly represent more than 100 years of combined launch experience. Notably, both Lockheed’s and Boeing’s business segments involving space-related equipments; add to the strength of their growth trajectory.

Moreover, Lockheed had raised its 2016 outlook for its Space Systems segment by $25 million, in its second quarter, reflecting better-than-expected results projected by its management. On the other hand, key contract awards have been a major driver of growth for Boeing’s Space & Security segment. Considering these developments, we expect both Boeing and Lockheed’s business to gain strong impetus following the recent modification contract.

Zacks Rank & Other Stocks to Consider

Lockheed currently carries a Zacks Rank #4 (Sell), while Boeing sports a Zacks Rank # 3 (Hold). A few better-ranked stocks in the aerospace and defense sector include Engility Holdings, Inc. (EGL - Snapshot Report) and General Dynamics Corp (GD - Analyst Report) .

Engility sports a Zacks Rank #1 (Strong Buy) and has witnessed a 4.37% rise in its last 1 month’s stock price. On average, the company delivered a positive earnings surprise of 12.09% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

General Dynamics sports a Zacks Rank #2 (Buy) and has witnessed a 1.52% rise in its last 1 month’s stock price. This company’s current year consensus estimate improved 9.4% in last 60 days.

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