Leidos Holdings (LDOS - Free Report) announced that it has received a contract from the U.S. Navy's Naval Sea Systems Command to develop torpedo countermeasure technologies for submarine defense. The company will utilize its expertise to build and test an acoustic device countermeasure (ADC) called the ADC MK5, a three-inch diameter device. This new device will replace existing ADC MK3 systems that are currently used in the submarines.
Details of the Deal
The single award, cost-plus-fixed-fee contract from the U.S. Navy has a two-year base period of performance, three one-year option years and a potential value of nearly $36 million, if all options are exercised by the parties.
Per the contract, the company will provide technical as well as non-recurring engineering services such as software, and hardware development.
Importance of Undersea Countermeasures
The United States has dominated the seas for decades through advanced surface ships and submarines. Since its competitors are also developing measures to detect submarines, it has become essential to upgrade the technologies used in the submarines to stay ahead of the competition.
The new countermeasure device to be developed by Leidos Holdings will generate noise to deceive the sonar guidance systems of incoming torpedoes, in order to protect the submarines from under sea threats and save the lives of soldiers.
The new U.S. Administration approved defense spending for 2019. The budget is fixed at $716 billion, reflecting a 2.6% increase from the prior-year spending on defense. Out of the total fiscal 2019 spending, nearly $18.3 billion is reserved for shipbuilding and allied activities.
This development will undoubtedly boost the prospects of Virginia-class submarine producers, General Dynamics Corp. (GD - Free Report) and Huntington Ingalls Industries, Inc. (HII - Free Report) . In addition, such activities will help operators like Leidos Holdings, as it will be providing new technologies to protect these costly machines from possible threats.
Zacks Rank & Price Movement
Leidos Holdings currently has a Zacks Rank #4 (Sell).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of the company have declined 18.1% in the past 12 months compared with its industry’s decline of 8.9%.
A Key Pick
Investors interested in the defense sector can consider Lockheed Martin Corporation (LMT - Free Report) , currently sporting a Zacks Rank #1.
Long-term (three to five years) earnings growth for Lockheed Martin is currently pegged at 6%. Its Zacks Consensus Estimate for 2019 has moved up 2.5% to $19.49 per share in the past 90 days.
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