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Lockheed Martin Wins $946M Support Deal for Saudi's THAAD

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Lockheed Martin Corp’s (LMT - Free Report) Missiles and Fire Control (MFC) business unit recently secured a $945.9-million non-competitive hybrid contract for providing the Kingdom of Saudi Arabia (KSA) with technical support services related to Terminal High Altitude Area Defense (THAAD) missile system. The contract was procured under the Foreign Military Sale (FMS) program.

Details of the Deal

Per the deal, Lockheed Martin’s MFC unit will provide phase I long lead items, tooling and test equipment, key personnel, line requalification activities, initial training development, System Integration Lab and testbeds, three-level maintenance concept, exportability, and early engineering development for THAAD.

Work related to the deal will be executed in Dallas, TX; Huntsville, AL; Sunnyvale, CA and other locations within the United States. The contract, provided by the Missile Defense Agency, Huntsville, AL, is scheduled to get completed by Oct 31, 2026.

What’s THAAD?

The Terminal High Altitude Area Defense (THAAD) system is an anti-missile system that uses a hit-to-kill approach to shoot down short, medium and intermediate ballistic missiles in their terminal phase.

Recent Developments on THAAD

Toward the end of November 2018, KSA signed a letter of offer and acceptance (LOA) with the United States for procuring 44 THAAD launchers, missiles and related equipment, which had an estimated value of around $15 billion. During the fourth-quarter earnings call, Lockheed Martin further mentioned that it anticipates to acquire large THAAD orders from Saudi Arabia in 2019, possibly owing to the rising tensions looming over the Middle-East region along with a possible Iranian armed group expansionism.

What Favors Lockheed Martin?

Lockheed Martin provides a number of major programs and capabilities to Saudi Arabia that has immensely helped its overseas business thrive over the years. This, in turn, has also paved path for the company to expand its foothold in the Middle East region as well.

Interestingly, Lockheed Martin’s MFC business unit derives a major portion of revenues from its air and missile-defense product line, with THAAD being a notable contributor. In the fourth quarter, the MFC business segment generated sales of $2.43 billion, which represented 22% year-over-year growth. This unit has been witnessing strong demand overseas, especially from the Middle East. To this end, we may expect this unit to witness notable revenue growth in the near term as well, courtesy of the latest contract win.

Furthermore, the fiscal 2019 U.S. defense budget has provisioned for a spending plan of $6 billion for varied missile programs. Lockheed Martin is
expected to gain significantly from this provision, which includes an investment plan of $1.1 billion for its THAAD missiles.

Price Movement

Lockheed Martin’s share price has increased 8.2% in the past three months.

Zacks Rank & Stocks to Consider

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

A few better-ranked stocks in the same sector are The Boeing Company (BA - Free Report) , Spirit Aerosystems Holdings (SPR - Free Report) and Heico Corporation (HEI - Free Report) . While Boeing and Spirit Aerosystems sport a Zacks Rank #1 (Strong Buy), Heico carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boeing came up with average positive earnings surprise of 15.52% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has risen 11.3% to $20.13 in the past 90 days.

Spirit Aerosystems’ long-term growth estimates currently stand at 7.80%. The Zacks Consensus Estimate for 2019 earnings has risen 3.7% to $7.56 in the past 90 days.

Heico Corporation’s long-term growth estimates currently stand at 12.10%. The Zacks Consensus Estimate for 2019 earnings has risen 7% to $2.14 in the past 90 days.

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