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Lockheed Martin Wins $713M Deal for F-35's Technology Upgrade

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Lockheed Martin Corp.’s (LMT - Free Report) business segment, Aeronautics, recently secured a contract for developing advanced hardware to support the F-35 Lightning II Technology Refresh 3 (TR3) System. The deal has been awarded by the Naval Air Systems Command, Patuxent River, Maryland.

Details of the Deal

Valued at $712.5 million, the contract will cater to the U.S. Marine Corps, Navy and non-U.S. Department of Defense (DoD) participants. Under the agreement, the company will design the TR3 System with full flightworthy certification, production readiness review and fleet release to support low-rate initial production of the 15th Lot of F-35 jets.

Work related to the deal is scheduled to be over by March 2023 and will be carried out in Fort Worth, TX.

F-35 Program & TR3 System

The F-35 Lightning is a supersonic, multi-role fighter jet that represents a quantum leap in air-dominance capability, offering enhanced lethality and survivability in hostile, anti-access airspace environments. It is being used by the defense forces of the United States and 11 other nationschiefly owing to its advanced stealth, integrated avionics, sensor fusion, superior logistics support and powerful integrated sensors capabilities.

Considering the huge demand for its F-35 program, Lockheed Martin has been modernising the F-35 attributes to make it more combat friendly, enabling the company to secure more contracts worldwide. For this, in June 2017, Lockheed Martin announced that it has selected Harris Corp (HRS - Free Report) to upgrade mission system avionics for the F-35 Lightning II as part of the Technology Refresh #3 (TR3) program, significantly boosting the aircraft’s data storage, display processing and throughput capabilities.

What Favors Lockheed Martin?

The F-35 is Lockheed Martin’s largest program that generated 27% of its total sales in third-quarter 2018. The program drove annual revenue growth by 19.6% for the company’s Aeronautics division. Keeping up with this trend, we may expect the latest contract win to enable the Aeronautics unit to deliver similar or even better performance in the upcoming quarters.

Meanwhile, production of F-35 is expected to improve 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, overseas customers and rising demand globally. Taking into account the F-35 program’s solid estimated production rate, the latest contract win involving technological enhancement of these jets should further provide a boost to this program in the coming days.

These apart, the fiscal 2019 defense budget provisioned for a spending plan of $21.7 billion on aircraft. In particular, the budget hinted at a prospective improvement in Lockheed Martin’s F-35 Joint Strike Fighter program, which has been allotted $10.7 billion and an additional funding for the procurement of 97 F-35 Joint Strike Fighters. Such developments reflect solid prospects for Lockheed Martin’s F-35 program, which are likely to boost the company’s profit margin.

Price Movement

In a year’s time, Lockheed Martin’s stock has lost 19.4% compared with the industry’s 10.7% decline. 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, both domestically and internationally.

Zacks Rank & Other Stocks to Consider

Lockheed Martin currently carries a Zacks Rank #2 (Buy). Some other top-ranked companies in the same sector are Aerojet Rocketdyne Holdings (AJRD - Free Report) and Teledyne Technologies Incorporated (TDY - 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 moved 43.3% north to $1.82 over 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 climbed 6% to $8.75 over the past 90 days.

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