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Lockheed Martin (LMT) Wins $736M Deal to Modify F-35 Jets

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Lockheed Martin Corp.’s (LMT - Free Report) Aeronautics division recently won a $735.7 million modification contract to support the F-35 Lightning II program. The contract was awarded by the Naval Air Systems Command, Patuxent River, MI.

Details of the Deal

Per the deal, Lockheed Martin will provide material and equipment for the low rate initial production (LRIP) of the 13th and 14th lots of F-35 jets. The material and equipment would be provided, following the completion of formal hardware qualification testing.

Additionally, the contract will offer long-lead time materials, parts and components to support the LRIP of F-35’s 13th lot.  The modification includes 49% of the work for the U.S. Air Force, 26% for the U.S. Navy and 25% for the U.S. Marine Corps.

Majority of work related to the deal will be performed in Fort Worth, TX; El Segundo, CA, and Warton, the U.K, while the rest will be executed in Nagoya, Japan and other various locations across the United States. It is expected to get completed by December 2019.

The company will utilize fiscal 2018 aircraft procurement (Air Force, Navy, and Marine Corps) funds for completing the task.

Benefits of F-35 Lightning Jet

The F-35 Lightning, which is a supersonic, multi-role fighter jet, represents a quantum leap in air-dominance capability that offers enhanced lethality and survivability in hostile, anti-access airspace environments. Its advanced stealth allows pilots to penetrate into areas without being detected by enemy radars.

Due to its advanced stealth, integrated avionics, sensor fusion, superior logistics support, and powerful integrated sensors capabilities, the F-35 jet is being used by the defense forces of the United States and 11 other nations, worldwide. Looking ahead, the program’s domain is expanding notably around the globe.

What’s Favoring Lockheed Martin?

The F-35 program is Lockheed Martin’s largest program, which generated 24% of its total net sales in first-quarter fiscal 2018. Moreover, higher sales from the F-35 program, during the same quarter, enabled its Aeronautics segment’s revenue to grow 7% year over year to $4.4 billion. As of May 14, 2018, the company successfully delivered more than 290 F-35 jets to the United States and its allies.

Lockheed Martin, being one of the Pentagon’s prime contractors, enjoys a steady flow of contracts each year and the second quarter of fiscal 2018 has not been any exception either. In May, the company secured a contract worth $558 million to support the low-rate initial production of F-35 Lightning II aircraft of the 11th lot. Considering the frequent order inflows, we expect its Aeronautics unit to reflect similar solid performance in the coming quarterly results as well.

Moreover, production of F-35 is expected to rise in the years ahead, given the U.S. government’s current inventory objective of 2,456 aircraft for the Air Force, Marine Corps and Navy along with commitments from the company’s eight international partners and rising international demands.

Furthermore, the fiscal 2019 defense budget proposal, announced by Trump this February, provisions for a spending plan of $21.7 billion on aircraft. The budget proposal hints at a prospective increase in Lockheed Martin’s F-35 Joint Strike Fighter program that has been allotted $10.7 billion along with additional funding for the procurement of 97 F-35 Joint Strike Fighters. Evidently, these developments reflect solid growth prospects for Lockheed Martin’s F-35 program going ahead, which, in turn, are likely to boost the company’s profit margin.

Price Movement    

Lockheed Martin’s stock has improved about 15.3% in the past year compared with the industry’s gain of 42.9%. The underperformance may have been caused by the intense competition that 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 (Buy). A few better-ranked stocks in the same space are Northrop Grumman Corporation (NOC - Free Report) , The Boeing Company (BA - Free Report) and Wesco Aircraft Holdings, Inc. (WAIR - Free Report) .

While Northrop Grumman sports a Zacks Rank #1 (Strong Buy), Boeing and Wesco Aircraft carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Northrop Grumman recorded an average positive earnings surprise of 13.87% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 2.2% to $9.67 in the last 90 days.

Boeing recorded an average positive earnings surprise of 29.51% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen 4.4% to $14.67 in the last 90 days.

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

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