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Lockheed Martin Wins $78M Deal to Support Aegis Combat System

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Lockheed Martin Corp.’s (LMT - Free Report) Rotary and Mission Systems (RMS) business unit recently won a $78.3-million modification contract for providing design, development, integration, test and delivery of Aegis Advanced Capability Build (ACB) 20 fleet. Work related to the deal will be performed in Moorestown, New Jersey.

The contract was awarded by the Naval Sea Systems Command, Washington, DC and is expected to get completed by December 2021. Lockheed Martin will utilize fiscal 2018 research, development, test and evaluation (Navy) funds for completing the task.

Aegis Combat System & ACB 20

The Aegis Combat System is the world’s most advanced combat system and the only maritime ballistic defense system, capable of simultaneously attacking land targets, submarines, and surface ships, while protecting the
fleet against aircraft, cruise missiles and other ballistic missiles.

The ACB-20 incorporates several technologies into Lockheed Martin’s new DDG-51 Flight III Aegis ships. A key component of the build is the Baseline 9C hardware and software, including Lockheed Martin’s multi mission signal processor that allows the destroyers to switch between their missile and air defense roles. Another addition to the ACB-20 modernization program is the full integration of the SM-6 and Evolved Sea Sparrow Missile Block II missile interceptors.

What Favors Lockheed Martin?

In recent times, heightened geo-political tensions and increasing terrorist activities across the globe are compelling nations to strengthen their military arsenal, with missile systems constituting an integral part of it. No doubt, the United States is following a similar strategy, with the nation being the largest exporter of military weaponries. This is evident from the $1.7-billion investment plan to purchase 43 Aegis Ballistic Missile Defense systems, included in the fiscal 2019 defense budget that was approved by the U.S. Senate, this June.

Meanwhile, during second-quarter 2018, revenues at Lockheed Martin’s RMS unit increased 4.5% year over year. Buoyed by increasing demand for upgraded missile defense systems, consistent order flows from Pentagon, like the latest one, can be expected to generate similar top-line growth for the unit, in coming days.

Additionally, per ASD Media BV, the global Missiles and Missile Defense Systems (MMDS) market value is projected to see a CAGR of 6% to $93 billion by 2027 from 2018. Such growth can be attributed to heavy and frequent investments made by countries like the United States, China, Russia and Israel in the development of next generation missiles and missile defense systems along with the large scale procurement made by countries like Saudi Arabia, India, Japan and South Korea. Being Pentagon’s largest defense contractor, we may expect Lockheed Martin to capture significant shares of this expanding market, thereby bolstering its dominant position in the defense space.

Price Movement    

Lockheed Martin’s stock has improved only 11% in the last year compared with the industry’s growth of 22.8%. 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 (Hold).

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

While Aerojet Rocketdyne sports a Zacks Rank #1 (Strong Buy), Huntington Ingalls and Engility 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 30.9% to $1.27 in the last 90 days.

Engility delivered an average positive earnings surprise of 19% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has moved up 16.1% to $2.02 in the last 90 days.

Huntington Ingalls pulled off an average positive earnings surprise of 9.48% for the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings has moved 6.4% north to $17.24 in the last 90 days.

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