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Lockheed Martin Wins $3.4B Deal for PAC-3 Missile Systems

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Lockheed Martin Corp. (LMT - Free Report) recently secured a $3.4 billion foreign military sales (FMS) contract for producing Phased Array Tracking Radar to Intercept on Target (PATRIOT) Advanced Capability-3 (PAC-3) missiles. The contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, Albama.

Per the terms of the agreement, Lockheed Martin will also manufacture associated ground support equipment and initial spares in relation to the PAC-3 missiles. Work related to the deal is scheduled to be over by Dec 31, 2024. The tasks will be performed in Huntsville, Al; Camden, AR; Ocala, FL; Chelmsford, MA; Grand Prairie and Lukin, TX.

A Brief Note on PAC-3 Missiles

The PAC-3 missile system is an advanced defensive missile for the U.S. Army and international customers designed to intercept and eliminate incoming airborne threats using kinetic energy. The system’s radar set provides tactical functions of airspace surveillance, target detection, identification, classification, tracking, missile guidance and engagement support.

Notably, the latest version of this missile systems, the PAC-3 Missile Segment Enhancement (PAC-3 MSE) interceptor, comes with larger control fins and upgraded actuators that help in increasing maneuverability.  

Our View

Being one of the forerunners in the missile defense space, Lockheed Martin’s Missile and Fire Control (MFC) unit manufactures advanced combat, missile, rocket, manned and unmanned systems for military customers of the U.S. government and foreign allies. Regarding the aforementioned contract win, it also worth mentioning that PAC-3 is one among the company’s top-notch missile systems.

Coming to this missile systems’ performance in recent times, the agreement signed by the U.S. and Swedish officials this August for delivery of PAC-3 MSE missiles to the government of Sweden, is imperative to mention. This deal made Sweden the sixth international customer to sign an agreement for Lockheed Martin’s PAC-3 MSE missiles, thereby reflecting this missile systems’ demand in overseas defense space.

Needless to say, such inflow of orders tends to fuel Lockheed Martin’s top-line performance. Evidently, the company’s MFC segment recorded third-quarter 2018 net sales of $2.27 billion, reflecting a solid 16% improvement from the year-ago quarter number. Considering the company’s latest contract win, we may expect the MFC segment to consistently deliver top-line growth in coming days as well.

Moreover, the fiscal 2019 defense budget provides for an investment plan of $1.1 billion for procuring 240 PAC-3 MSE. With widespread geo-political conflicts across the globe, such funding provisions is likely to keep Lockheed Martin on a growth trajectory.

Price Performance

In a year’s time, shares of Lockheed Martin have lost about 19.3% against the industry’s 11.5% growth. 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 domestically and internationally.

Zacks Rank & Other Stocks to Consider

Lockheed Martin currently carries a Zacks Rank #2 (Buy). A few top-ranked companies in the same sector are Aerojet Rocketdyne Holdings (AJRD - Free Report) , Teledyne Technologies Incorporated (TDY - Free Report) and AeroVironment, Inc. (AVAV - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne delivered average positive earnings surprise of 19.27% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has increased 43.3% to $1.82 in the past 90 days.

Teledyne Technologies delivered average positive earnings surprise of 12.92% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings has increased 6% to $8.75 in the past 90 days.

AeroVironment delivered average positive surprise of 257.01% in the preceding four quarters. The Zacks Consensus Estimate for fiscal 2019 earnings has been revised 13.2% upward to $1.54 over the past 30 days.

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