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Lockheed Martin Wins $584M Deal for Littoral Combat Ship

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Defense prime Lockheed Martin Corporation (LMT - Free Report) secured a contract for the construction of a littoral combat ship (LCS). Work related to this deal is expected to be over by October 2023.

Notably, an LCS is a type of relatively small surface vessel intended for operations in the littoral zone. These are well designed to tackle the rapidly changing global threats and provide a cost-effective solution.

Details of the Deal

Valued at $584.2 million, the contract has been awarded by the Naval Sea Systems Command, Washington, D.C.

Per the contract, the company will provide related LCS class services and material, along with integrated data environment support. The agreement also includes options for the construction of additional LCS, class services and post-delivery availability support. The Navy expects to order additional LCS class ships in the future.

Per the terms of the agreement, majority of the work will be executed in Marinette, WS. The remaining part will be carried out at other regions of the United States.

The deal will utilize fiscal 2017 shipbuilding and conversion (Navy) funds for construction of one fiscal 2017 LCS; and fiscal 2016 shipbuilding and conversion (Navy) for LCS class services and integrated data environment support.

What’s Favoring Lockheed?

Lockheed Martin is the chief contractor of the U.S. Navy’s newest LCS. The program of building these Freedom-class ships involves 900 companies in 43 states.

It is important to note here that the Navy is most likely to purchase 52 LCS ships, but government officials have told the Navy to cut that number. Defense Secretary Carter had earlier made a proposal to the Navy to reduce purchases to 40. Navy officials have however, remained unchanged in their initial target of 52 ships.

Going forward, we expect the latest contract to substantially boost the company’s growth trajectory.  Also, the defense prime remains confident of winning more of such contracts in the near term.

Price Movement

Lockheed Martin’s stock has returned 35.7% in the last year, underperforming the 52.9% rally of the industry it belongs to. This may 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.



 

Zacks Rank & Stocks to Consider

Lockheed Martin carries a Zacks Rank #4 (Sell). Better-ranked stocks in the aerospace and defense sector include Engility Holdings, Inc. (EGL - Free Report) , Leidos Holdings, Inc. (LDOS - Free Report) and Northrop Grumman Corp. (NOC - Free Report) .While Engility Holdings and Leidos Holdings sport a Zacks  Rank #1 (Strong Buy), Northrop Grumman holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Engility delivered an average positive earnings surprise of 23.50% in the last four quarters. The Zacks Consensus Estimate for current-year earnings has moved up 2.3% in the last 60 days.

Leidos Holdings delivered an average positive earnings surprise of 18.01% in the last four quarters. The Zacks Consensus Estimate for current-year earnings has climbed 1.1% in the last 30 days.

Northrop Grumman pulled off an average positive earnings surprise of 12.60% in the last four quarters. Its 2017 earnings estimates have inched up 0.2% in the last 30 days.

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