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Lockheed (LMT) Wins Deal to Support Japan's AEGIS System (revised)

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Defense bellwether Lockheed Martin Corporation’s (LMT - Free Report) business segment, Rotary and Mission Systems (‘’RMS’’), secured a modification contract for offering equipment upgrades and spares to the AEGIS Weapon System baseline located in Japan. Work related to the deal is scheduled to be over by September 2020.

Details of the Deal

Valued at $49.3 million, the contract was awarded by the Naval Sea Systems Command, Washington, D.C. Per the terms of the agreement, Lockheed Martin will also supply systems engineering and staging services support, in relation to the AEGIS baseline, to the Japanese Computer Program Test Site.

Majority of work for this foreign military sales (FMS) deal will be carried out in Moorestown, NJ. The remaining work will be carried out in Yokosuka, Japan and Clearwater, FL.

A Brief Note on Aegis

AEGIS is an integrated missile-guidance system. With Lockheed Martin as its primary manufacturer, the AEGIS Weapons system is used by the U.S. Navy and allied ships.

Over time, AEGIS has become an integral part of the U.S. Navy by developing sophisticated capabilities to counter emerging threats and leverage new technologies. Its latest configuration, Baseline 9, offers an open architecture framework to allow extreme flexibility.

Our View

Lockheed Martin's RMS segment 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 $3.4 billion in the second quarter of 2017, reflecting 3% year-over-year growth.

In light of the recently won FMS contract, we expect this segment to witness similar or even more revenue growth in coming quarters.

Currently, Lockheed Martin's AEGIS is the maritime weapon system of choice for six powerful nations. As of January 2017, 84 U.S. Navy ships were in service with the AEGIS Weapons System installed. This number will definitely rise given the strong demand for AEGIS prevalent across the globe. Considering these developments, we expect Lockheed Martin to win more contracts like the latest one, in days ahead, which, in turn, will boost its profitability.

Moreover, the latest Senate approval for the $700 billion National Defense Authorization Act indicates significant inflow of contracts for the front-row defense stocks in the United States. Therefore, the time is ripe for adding defense majors like Lockheed Martin, Northrop Grumman Corporation (NOC - Free Report) and The Boeing Company (BA - Free Report) , in your watchlist.

We are reissuing this article to correct a mistake. The original article, issued Wednesday, September 27, 2017, should no longer be relied upon.

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