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Lockheed Martin Wins $582M Deal to Supply Air Vehicle Spares

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Lockheed Martin Corp.’s (LMT - Free Report) Aeronautics business unit secured a modification contract for providing air vehicle initial spares to support the air vehicle delivery schedule for the U.S. Air Force, Navy, Marine Corps, non-Department of Defense (DoD) participants, and foreign military sales customers. Work related to this deal is expected to be over by Apr 2021.

Details of the Deal

Valued at $581.8 million, this contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Per the terms of the agreement, Lockheed Martin will provide F-35 common spares, F-35A, F-35B and F-35C unique spares, and aloft spares packages/deployment spares packages and reprogramming lab spares.

Majority of the work will be performed in Fort Worth, TX, while the rest will be carried out at various other locations across the nation. The company plans to utilize fiscal 2015, 2016 and 2017 aircraft procurement funds, non-DoD participant and foreign military sales to finance this contract.

What’s Acting in Favor of Lockheed Martin?

Being Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. The company’s Global Supply Chain Services (GSCS) offer hardware replacements for both structural and consumable parts as along with a certified vendor program.

In fact, GSCS has been providing aircraft tires to all Navy and Marine Corps aviation activities worldwide for over 10 years. Within this period, the company’s performance has included a 100% fill rate and on-time global delivery of 98.4%, resulting in a 400% reduction in retail inventories for Navy and Marine Corps activities within continental U.S.

Under various programs, GSCS provides crucial support to the three U.S. Air Force depots by maintaining a constant supply of miscellaneous, small consumable parts in more than 295,000 parts bins with 90,000 unique line items at a bin fill rate of over 99.78%. In terms of international business as well, GSCS provides support services to 55 international and commercial customers, with over 40 years of experience.

Our View

Lockheed Martin ended 2016 with backlog worth $96.2 billion, which implies a 3.6% rise from the year-ago number, indicating increased demand from both domestic and international customers. Its leveraged presence in the Army, Air Force, Navy and IT programs guarantees a steady flow of follow-on orders, not only from the U.S. government but also from a large number of foreign allies of the nation.

Last month, the company won a similar contract worth $750 million for providing flight line spare parts. The deal was awarded by the Defense Logistics Agency Aviation, Richmond, VA (read more: Lockheed Wins $750M Defense Deal for Spare Parts Supply).

Such contracts, including the latest one, are expected to boost Lockheed Martin’s sales from the Aeronautics division that witnessed a solid 23% rise in the last reported quarter.

Moreover, the company’s anticipation to generate more than $5.7 billion in cash from operations during 2017, as against $5.2 billion at 2016-end, buoys optimism.We expect Lockheed Martin to maintain this upbeat performance in the quarters to come.

However, Lockheed Martin underperformed the Zacks categorized Aerospace/Defense industry in the last one year, with the company’s gain of 19.4% lagging the industry’s addition of 23.5%. This underperformance might have been because of intense competition from some of the largest defense primes in the U.S., particularly The Boeing Company (BA - Free Report) , Northrop Grumman Corp. (NOC - Free Report) and Embraer S.A. (ERJ - Free Report) . Also, the current quarter EPS estimates for the company have come down by 2 cents over the past 30 days, which reflects investors’ reluctance to consider the stock as a suitable investment option for the time being.

Zacks Rank

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

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