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Lockheed Martin Clinches $282M Deal to Support PAC-3 Missile

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Lockheed Martin Corp. (LMT - Free Report) recently secured a $282-million modification contract for providing post production support to the Phased Array Tracking to Intercept of Target (PATRIOT) Advanced Capability-3 (PAC-3) missile. Work related to the deal is scheduled to be completed by May 19, 2019.

The contract includes domestic and foreign military sales to Netherlands, Germany, Japan, Saudi Arabia, Kuwait, Qatar, Taiwan, United Arab Emirates and South Korea.

The contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, Alabama. Locations for carrying out tasks and funding will be determined with each order.

A Brief Note on PAC-3 Missile System

The PAC-3 missile system is a long range, air-defense and medium to high-altitude guided missile system. It is designed to counter tactical ballistic missiles, cruise missiles and advanced aircraft. The system’s radar set provides tactical functions of airspace surveillance, target detection, identification, classification, tracking, missile guidance and engagement support.

Per Lockheed Martin, the PAC-3 Missile Segment Enhancement (PAC-3 MSE) interceptor has a two-pulse solid rocket motor that boosts altitude and range. The company anticipates that demand for this advanced missile system to be high, particularly in politically tense regions of the Middle East.

What’s Favoring Lockheed Martin?

Lockheed Martin’s PAC-3 team achieved several notable milestones in the first quarter of 2018. For instance, following the U.S. and Polish officials’ agreement in the first quarter, under which Poland became Lockheed Martin’s fifth international PAC-3 MSE customer, PAC-3 MSE interceptors will support Poland's WISLA Air and Missile Defense system. Moreover, in February 2018, the company won a $524-million contract for the production of PAC-3 enhancement missiles.

Inevitably, such massive order inflows for its PAC-3 missiles and interceptors tend to fuel the company’s top-line growth.  Evidently, the company’s Missiles and Fire Control segment, which produces the PAC-3
defense missiles and interceptors, recorded first-quarter 2018 net sales of $1.7 billion, reflecting a healthy 8% improvement from the year-ago quarter. In line with this, we may expect the latest contract to boost MFC’s revenue growth in second quarter as well.

Moreover, in February 2018, President Trump proposed fiscal 2019 defense budget that provisions for an investment plan of $6 billion for varied missile programs. Lockheed Martin, being a prominent missile supplier for the U.S. Army, is expected to gain significantly from this provision.

Price Movement    

Lockheed Martin’s stock has improved about 15.3% in the past one year, compared with the broader industry’s gain of 38.8%. The underperformance may have been caused by the intense competition the company faces in the aerospace-defense space for its broad portfolio of products and services, both domestically as well as internationally.

Zacks Rank & Key Picks    

Lockheed Martin currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are AeroVironment, Inc. (AVAV - Free Report) , Boeing (BA - Free Report) and Wesco Aircraft Holdings, Inc. (WAIR - Free Report) . While AeroVironment sports a Zacks Rank #1 (Strong Buy), Boeing and Wesco Aircraft Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AeroVironment recorded an average positive earnings surprise of 147.43% in the past four quarters. The company’s long-term growth rate is pegged at 20%.

Boeing recorded an average positive earnings surprise of 29.51% in the past four quarters. The Zacks Consensus Estimate for 2018 earnings rose by 66 cents to $14.61 in the past 90 days.

Wesco Aircraft Holdings long-term growth rate is pegged at 12%. The Zacks Consensus Estimate for 2018 earnings rose by 10 cents to 77 cents in the past 90 days.

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