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Lockheed Martin (LMT) Unit Wins $98M SEWIP Block 2 Contract

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Lockheed Martin Corp.’s (LMT - Free Report) Rotary and Mission Systems business division has won a modification contract from the U.S. Navy to produce Surface Electronic Warfare Improvement Program (SEWIP) Block 2 subsystems.

Contract Details

The contract is valued at $98.5 million and was awarded by the Naval Sea Systems Command, Washington, D.C.

This SEWIP development program is expected to “expand upon the receiver/antenna group”, which is essential for upgrading the capabilities to counter threats as well as enhance system integration.

The work is scheduled to be completed by Jul 2019. The majority of work will be executed in Liverpool, NY, and Lansdale, PA; while the rest will be performed in Chelmsford, MA; Frankfort, NY; and various other places across the U.S. The contract will use fiscal 2017 other procurement (Navy); and fiscal 2015 shipbuilding and conversion (Navy) funds.

About SEWIP Block 2

SEWIP Block 2 is the latest version of the "blocks" that the Navy is pursuing for its shipboard electronic warfare system. The original AN/SLQ-32 system was developed by Raytheon Company (RTN - Free Report) . It uses radar technology for the early warning, identification and tracking of enemy threats. The system is fully compliant with the Navy's Product Line Architecture strategy and aids the rapid introduction of advanced technology into the fleet.

Why Lockheed Martin?

In Sep 2009, Lockheed Martin received a contract to produce a preliminary design for the SEWIP Block 2. Since then, the company has received Low Rate Initial Production (LRIP) contracts for another 38 units. Of these orders, 22 units have been delivered to the Navy to date, per the contract schedule.

The SEWIP Block 2 system is vital to the Navy's operation as threats are becoming increasingly complex and advanced. Additionally, its electronic warfare systems feed information to the warfighter, thereby allowing it time to respond even before an attack has been initiated.

Our View

Lockheed Martin’s Rotary and Mission Systems business carries out some of the company’s high-profile programs including the Aegis Combat System, Littoral Combat Ship, MH-60 helicopter avionics along with military and commercial orders. It generated revenues of $3.8 billion in the fourth quarter of 2016, reflecting 27.7% of the total revenue.

Moving ahead, the company’s improved cash outlook for 2017 reflects enhanced cash performance at the Rotary and Mission Systems division. That said, the aforementioned contract gain has the potential to boost revenues of this business division.

Price Movement

Lockheed Martin’s stock has improved about 22.7% in the last one year, underperforming the Zacks categorized Aerospace/Defense industry’s gain of 25.9%. This could be because the earlier budget cuts have put pressure on the top line although the present defense budget is more in favor of the sector. Budget deficits and political uncertainty make future defense budgets vulnerable to cutbacks. As a result, Lockheed Martin’s performance lagged behind the likes of General Dynamics Corp. (GD - Free Report) and Huntington Ingalls Industries, Inc. (HII - Free Report) , who have all outperformed the industry.

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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