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Lockheed Martin Wins $25M Deal for AN/TPS-59A(V)3 Radar

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Defense bellwether Lockheed Martin Corp.’s (LMT - Free Report) Rotary and Mission Systems (RMS) business unit recently secured a contract for the development and production of a digital receiver exciter for the AN/TPS-59A(V)3 Radar system. Work related to the deal is scheduled to be over by Jan 31, 2021.

Details of the deal

Valued at $25.3 million, the contract was awarded by the Marine Corps System Command, Quantico, VA. However the maximum value of the agreement can reach up to $46.7 million, on exercise of options included in the deal.

Majority of the work will be executed in Liverpool, NY, while the remaining at Atlanta, GA and Clearwater, FL. Lockheed Martin will utilize fiscal 2016 research, development, test and evaluation (Marine Corps) funds to complete the contract. 

A Brief Note on AN/TPS-59A(V)3 Radar system

Lockheed Martin’s AN/TPS-59A(V)3 is a long-range 3-D ground-based air surveillance radar.The radar, the latest version of the TPS-59 variety fielded in 1985, can detect and track air-breathing targets like aircraft and cruise missiles as far away as 300 miles. It can also detect tactical ballistic missiles as far away as 400 miles. AN/TPS offers 360-degree coverage to elevations of nearly 200 miles.

Developed for the United States’ Ballistic Missile Defense Organization and the Marine Corps, the TPS-59 (V) 3 is designed to operate with HAWK and Patriot systems. The radar has been designed to be transported by truck, helicopter, or C-130 cargo plane rapidly.

Our View

Lockheed Martin’s radar systems offer advanced precision targeting, navigation, threat detection and next generation intelligence, surveillance and reconnaissance (ISR) capabilities. In fact, the company’s radars and sensors have been designed and delivered to every armed service and operational environment. Thanks to its advanced radar systems, the company’s RMS unit enjoys a steady flow of contracts from the Pentagon. Evidently, Lockheed Martin won a contract worth $1.58 billion from the U.S. Army to supply radars that track incoming rocket, mortar and artillery fire in March 2017.

In the second quarter of 2017, the RMS business segment generated sales of $3.4 billion, which represented 26.8% of Lockheed Martin’s total sales and witnessed a 3% rise from the year-ago quarter figure. Currently, the company is developing the next generation radars and sensors that can detect, track and identify threats quickly. Considering this, more such radar-based contracts like the recent one can be expected for Lockheed Martin. This in turn will further boost sales growth for the RMS unit.

Moreover, in the budget proposals for additional fiscal 2017 appropriations worth $30 billion, the White House requested an extra base budget of $24.9 billion and Overseas Contingency Operations (OCO) budget worth $5.1 billion. Given the current U.S. administration being in favor of higher defense spending, there is a high chance for this proposal getting approved in the U.S. House as well as the Senate. This in turn will definitely improve the growth prospects of defense majors like Lockheed Martin, The Boeing Co. (BA - Free Report) , General Dynamics (GD - Free Report) and Northrop Grumman Corp. (NOC - Free Report) in the nation.

Price Movement

Lockheed Martin’s stock moved up 24% in the last one year, underperforming the broader industry’s gain of 36.4%.This could be because the earlier budget cuts have put pressure on the top line while the present defense budget is more in favor of the sector. Furthermore, we believe that budget deficits and political uncertainty might make future defense budgets vulnerable to cutbacks.

Zacks Rank

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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