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Lockheed Martin Wins $250M Deal for F-35 Lightning Program

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Lockheed Martin Corp.’s LMT Aeronautics business division recently won a $250.4-million modification contract involving pricing for special tooling and special test equipment to support low-rate initial production (LRIP) of the 11th lot of F-35 Lightning II jets. Work related to the deal is expected to get completed by December 2021.

Details of the Deal

The contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. It includes 34.5% of the work for the U.S. Air Force, 17.9% for the U.S. Marine Corps, 16.5% for the international partners, 16.5% for FMS customers and 14.71% for the U.S. Navy. Work related to the deal will be performed in various locations across the United States and the world like Fort Worth, TX; El Segundo, CA; Orlando, FL; and Samlesbury, the U.K.

Lockheed Martin will utilize fiscal 2016 aircraft procurement (Air Force, Marine Corps, and Navy); international partner and foreign military sales funds for completing the task.

Benefits of F-35 Lightning II Program

The F-35 Lightning is a supersonic, multi-role fighter jet, which represents a quantum leap in air-dominance capability offering 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. It is being used by the defense forces of the United States and 11 other nations, worldwide, largely due to its advanced stealth, integrated avionics, sensor fusion, superior logistics support and powerful integrated sensors capabilities.

What’s Favoring Lockheed Martin?

The F-35 program, being Lockheed Martin’s largest program, generated 27% of its total consolidated net sales in second-quarter 2018. Further, the company’s Aeronautics division generated solid year-over-year revenue growth of 8.1%, primarily driven by higher net sales of approximately $370 million from the F-35 program. Considering the latest contract win supporting the low-rate initial production (LRIP) of the 11th lot, we may expect the Aeronautics unit to reflect similar solid performance in the upcoming 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 current eight international partners, overseas customers and rising global demand.

Furthermore, the fiscal 2019 defense budget, which was approved by the U.S. Senate in June 2018, provisioned for a spending plan of $21.7 billion on aircraft. Specifically, the new budget includes an allotment of $10.7 billion along with additional funding for the procurement of 97 Lockheed Martin’s F-35 Joint Strike Fighters. Evidently, these projections and recent 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 only 6.5% in the past year compared with the industry’s growth of 21.3%. 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 & Stocks to Consider

Lockheed Martin currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Aerojet Rocketdyne Holdings AJRD, Engility Holdings and Huntington Ingalls Industries HII.

While Aerojet Rocketdyne Holdings sports a Zacks Rank #1 (Strong Buy), Engility Holdings and Huntington Ingalls carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne came up with an average positive earnings surprise of 9.27% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 30.9% to $1.27 in the last 90 days.

Engility Holdings delivered an average positive earnings surprise of 19% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 16.8% to $2.02 in the last 90 days.

Huntington Ingalls Industries came up with an average positive earnings surprise of 9.48% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 3.7% to $17.24 in the last 90 days.

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