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Lockheed Martin Wins $2.45B Deal to Supply THAAD Interceptors

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Lockheed Martin Corp’s. (LMT - Free Report) Missiles and Fire Control (MFC) business unit recently secured a $2.46-billion modification contract for supplying Terminal High Altitude Area Defense (THAAD) interceptors and associated one-shot devices to the U.S. government and the Kingdom of Saudi Arabia (KSA). The deal raises the contract value from $1.43 billion to $3.89 billion.

Work related to the deal will be executed in Dallas, TX; Huntsville, AL; Sunnyvale, CA, and other locations across the United States. The contract, provided by the Missile Defense Agency, Huntsville, AL, is scheduled to get completed by Apr 1, 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.

THAAD’s Demand in KSA

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

These latest developments reflect strong demand growth witnessed by Lockheed Martin’s THAAD system in the Middle-East region, lately.

Looking Ahead

Also, in the domestic ground, Lockheed Martin’s THAAD system enjoys strong demand. As a result, the company’s MFC business unit witnesses solid top-line growth, with THAAD being a notable contributor. In fact, the MFC segment generated sales of $2.43 billion, representing  22% year-over-year growth. Hence, we may expect this unit to witness notable revenue growth in the near term as well, courtesy of the aforementioned developments.

Per Research and Markets, the global missiles and missile defense systems market is expected to increase to $93 billion by 2027, at a CAGR of 6%, wherein missile defense systems is anticipated to be the larger contributor. This is primarily due to the ongoing procurement of missile and air defense systems by the Asia-Pacific, North America and European regions. This, in turn, will increase the demand for missile interceptors and other technical services. Lockheed Martin, being a prominent missile manufacturer, is most likely to benefit from such favorable projections, going forward.

Price Performance

Shares of Lockheed Martin has dropped about 8.9% in a year against the industry’s growth of 0.1%.

Zacks Rank & Key Picks    

Lockheed Martin currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are Spirit Aerosystems Holdings (SPR - Free Report) , AeroVironment, Inc. (AVAV - Free Report) and Heico Corporation (HEI - Free Report) .

While Spirit Aerosystems sports a Zacks Rank #1 (Strong Buy), Heico and AeroVironment carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Spirit Aerosystems’ long-term growth estimates currently stand at 7.8%. The Zacks Consensus Estimate for 2019 earnings has risen 3.7% to $7.56 in the past 90 days.

Heico Corporation came up with average positive earnings surprise of 4.8% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has increased 2.9% to $2.14 in the past 90 days.

AeroVironment’ long-term growth estimates currently stand at 25%. The Zacks Consensus Estimate for 2019 earnings has risen 16.67% to $1.75 in the past 90 days.

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