Defense bellwether Lockheed Martin Corp. (LMT - Free Report) has secured a contract for the replacement of the AGM-86B air-launched cruise missile. Work related to this deal is scheduled to be over by 2022.
Valued at $900 million, the contract was awarded by the Air Force Nuclear Weapons Center, Air Delivered Capabilities Directorate, Eglin Air Force Base, FL. Per the terms of the deal, Lockheed Martin will conduct technology maturation and risk reduction acquisition phase for the Long Range Standoff weapon (LRSO) — a next-generation cruise missile. Work will be carried out in Orlando, FL.
Apart from Lockheed Martin, the U.S. Air Force has also awarded a similar contract worth $900 million to defense major Raytheon Company (RTN - Free Report) .
A Brief Note on AGM-86B
Aerospace giant The Boeing Co.’s (BA - Free Report) AGM-86B air-launched cruise missile is long-range subsonic, 3,200-pound self-guided missile carried by a B-52 bomber at high and low altitudes. Armed with a nuclear warhead, it is a well-known American subsonic air-launched cruise missile (ALCM).
The missile electronically “sees” the terrain over which it flies and can travel more than 1,500 miles to hit the target. Owing to its long range, the missile can be launched far from hostile territory and still reach its target.
There has been a rapid rise in terrorist activities across the globe of late. With radical institutions having an easy access to weapons and North Korea consistently sending missile threats to the continental regions of the United States, America is left with little choice but to consistently develop its own tactical weaponries base.
With this aim in view, for last few years the U.S. Air Force has been planning to introduce the LRSO to strengthen its strategic bomber fleet further. In July 2016, the Air Force released a request for proposals of development for its LRSO nuclear cruise missile program, with up to two contract awards expected in the fourth quarter of fiscal 2017.
The proposal was to replace the aging AGM-86B air-launched cruise missile, with the weapon facing increasing sustainment and operational challenges against evolving threats. We believe the recently won contract by Lockheed Martin is in sync with this proposal.
Notably, Lockheed Martin boasts decades’ experience in missile systems. Its varied defense product portfolio includes the Joint Air-to-Surface Standoff Missile-Extended Range (JASSM-ER) —a long range, conventional air-to-ground, precision-guided standoff missile, along with tactical missiles and air-to-ground precision strike weapon systems.
With the global missiles and missile defense system market projected to grow at a CAGR of 2.18% during 2017-2024, to reach a value of $41 billion, we can expect the company to win more such missile contracts in the days ahead. This in turn will surely boost Lockheed Martin’s growth trajectory in the aerospace and defense space.
Lockheed Martin’s stock has returned 22% in the last one year, underperforming the 37.1% rally of the industry it belongs to. This could have been caused by the company’s F-35 program, which, despite being a prime project of the U.S. government, has been repeatedly criticised for being overtly expensive. Moreover, Lockheed Martin faces stiff competition from other defense majors like Northrop Grumman Corp. (NOC - Free Report) .
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.
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