Lockheed Martin Corp.’s (LMT - Free Report) business segment, Aeronautics, recently clinched a foreign military sales (FMS) contract for manufacturing 16 F-16 V Block 70 aircraft. Work related to the deal is scheduled to be completed by Sep 30, 2020.
Details of the Deal
Valued at $1.1 billion, the contract was awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, Ohio. Per the terms of the agreement, the F-16 jets will be delivered to the Kingdom of Bahrain.
The production will be carried out in Greenville, SC; and Fort Worth, TX. Lockheed Martin will utilize FMS funds to complete the order.
A Brief Note on F-16
Originally manufactured by General Dynamics (GD - Free Report) , F-16 became part of Lockheed Martin after it acquired the former’s aircraft manufacturing business. The combat-proven F-16 falcon is a multi-role fighter jet, which currently serves 28 nations. As an F-16 Original Equipment Manufacturer (OEM), Lockheed Martin is uniquely qualified to design, engineer, develop, integrate and sustain a complete F-16 weapons system to meet customer requirements.
Over the decades, the F-16 falcon has evolved from a day-only lightweight jet to all-weather multi-role fighter. The F-16V Block 70 is the newest and most advanced generation of the F-16 fleet. Its superiority over the earlier F-16 models lies in its advanced APG-83 AESA radar.
Notably, Northrop Grumman’s (NOC - Free Report) APG-83 radar provides F-16s with 5th generation fighter radar capabilities, which allow better detection and tracking ranges, multiple target track as well as high-resolution Synthetic Aperture Radar (SAR) maps for all-environment precision strike.
Foreign Military Sales: A Key Catalyst
Apart from enjoying a strong foothold in domestic markets, Lockheed Martin’s combat-proven jets are also well acclaimed internationally. In March 2017, the U.S. administration declared that it will go forward with the sale of 19 Lockheed Martin F-16 jets to Bahrain worth $5 billion. Earlier, the deal was stalled by the Obama Administration owing to the human rights concerns. This go-ahead gave a huge boost to the F-16 product line’s growth.
Meanwhile, realizing the expanding defense market in the Middle East and Asia-Pacific regions lately, Lockheed Martin inked a landmark deal with Tata Advanced Systems Limited (TASL) in June 2017. Per the contract, both the companies will jointly manufacture Lockheed Martin’s F-16 Block 70 fighter jets in India. We believe this deal to be an important strategic move by the defense prime to substantially expand its foothold in the market of India — the world’s largest military weapons importer. Thus, reflecting the increased demand for Lockheed Martin’s F-16 model overseas.
Moreover, the United States considers Bahrain as its important partner in this region, given the prevailing socio-political tensions in the Middle East. This is quite evident from the last year’s deal. Moreover, in May 2018, the U.S. State Department approved Bahrain’s purchase of 3,200 bomb bodies to arm its fleet of F-16 fighters. This, in turn, is expected to bolster the Royal Bahraini Air Force’s ability to conduct and sustain air operations with its F-16 combat aircraft, which is expected to get yet another boost with the latest contract win.
For Lockheed Martin, aircraft deal wins like the latest one, should substantially drive its Aeronautics division’s sales. In the first quarter of 2018, this segment witnessed a 7% year-over-year improvement in sales and can be expected to exhibit similar performance moving ahead, based on aforementioned developments.
In a year’s time, Lockheed Martin has gained about 6.9% compared with the industry’s rally of 30.4%. 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 and internationally.
Zacks Rank & Key Pick
Lockheed Martin currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Boeing (BA - Free Report) , which has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Boeing came up with an average positive earnings surprise of 29.51% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings moved up 4.4% to $14.67 over the last 90 days.
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