Lockheed Martin Corp.’s LMT Missiles and Fire Control (MFC) business unit recently secured a contract for supplying the 9th Lot of Terminal High Altitude Area Defense (THAAD) interceptors to the U.S. Missile Defense Agency. The company expects to complete work under this deal by Mar 31, 2020.
Details of the Deal
Valued at $273.5 million, the contract was awarded by the Missile Defense Agency, Huntsville, AL. Per the terms of the agreement, Lockheed Martin will produce the 9th Lot of interceptors and one-shot devices in addition to providing associated production support.
Work related to the contract will be carried out in Dallas, TX; Camden, AK; Huntsville, Anniston and Troy, AL. The company plans to utilize fiscal 2017 procurement funds to finance this deal.
A Brief Note on THAAD
THAAD is an anti-missile system which can intercept and eliminate short- and medium range ballistic missiles. It is the only transportable missile defense system with the operational flexibility to intercept in both within and outside the Earth’s atmosphere for providing versatile capability to fighters.
What’s Favoring Lockheed?
Lockheed Martin’s MFC business unit derives a major portion of its revenue from its air and missile defense product line, with THAAD being a notable contributor. In 2016, the MFC business segment generated sales of $6.6 billion, which represented 14% of Lockheed Martin’s total sales. U.S. government customers accounted for 61% of this sales figure, while international customers accounted for 37%, reflecting strong demand for such products across the globe.
In fact, the company claims to be the world leader in missile defense, with its systems having achieved more than 100 successful intercepts in combat and flight testing since 1984 – more than any other company – and 50 successful target missions since 1996.
Being the Pentagon’s prime defense contractor, Lockheed Martin enjoys a lion’s share of the aerospace-defense industry in the U.S. On top of that, $13.5 billion of the additional $25 billion budget proposal that came from President Trump for core Defense Department programs for the current fiscal year, has been allocated for a number of defense equipments including THAAD. This surely, if accepted, will boost Lockheed Martin’s revenue growth. Going forward, more of such contracts can be expected in the future, given that THAAD is one of the top priorities in the Pentagon’s missile system.
Lockheed Martin underperformed the Zacks categorized Aerospace/Defense industry in the last one year, with the company’s gain of 20.7% being lower than the industry’s addition of 24.3%. This might have been triggered by intense competition from some of the largest defense primes in the U.S., particularly The Boeing Company BA, Northrop Grumman Corp. NOC and Embraer S.A. ERJ. Also, the current quarter EPS estimates for the company came down by 5 cents over the past 60 days, which reflects investors’ reluctance to consider the stock as a suitable investment option for the time being.
Lockheed Martin currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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