LMT Gets GEO Contract Modification - Analyst Blog

By Zacks | December 20, 2012 AAA

Lockheed Martin Corporation (LMT) was awarded a $66.6 million contract modification for initial non-recurring engineering for the Space-Based Infrared Systems geosynchronous earth orbit (GEO) 5-6 satellite program.  The location of the performance is Sunnyvale, California.  Work is expected to be completed by January 19, 2016.  

The Space-Based Infrared System is a consolidated system intended to meet the infrared space surveillance needs of the U.S. through the first two to three decades of the 21st century. The SBIRS program is designed to provide key capabilities in the areas of missile warning, missile defense and battlespace characterization. The SBIRS constellation consists of GEO satellites and highly elliptical orbit (HEO) payloads. Its mission is to warn against global and theater ballistic missile attacks.

Based in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company, engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. Key growth drivers of the company are its focus on debt repayment, its ongoing share repurchase program and the incremental dividend. Some of Lockheed Martin's main competitors are The Boeing Company (BA) and General Dynamics Corporation (GD).
    
Lockheed Martin recently reported strong third quarter numbers with earnings of $2.26 per share beating the Zacks Consensus Estimate of $1.85. With this the company also beat the year-ago earnings of $2.06 per share.

Lockheed Martin reported quarterly revenue of $11.9 billion, beating the Zacks Consensus Estimate of $11.1 billion. However, the figure fell below the year-ago quarterly revenue of $12.1 billion.

During the third quarter, the company repurchased 3.3 million shares at a cost of $294 million. In September this year, the company increased its quarterly dividend rate to $1.15 per share, up approximately 15 cents from the current payout of approximately $1.00 per share. The proposed hike would bring the annual dividend to $4.60, up 15% from the previous payout. The increased quarterly dividend will be paid on December 28, 2012 to shareholders of record at the close of business on December 3, 2012.

Going forward, we believe Lockheed Martin has significant upside potential based on the Obama administration's focus on Intelligence Surveillance Reconnaissance ("ISR"), unmanned systems, force protection, cybersecurity, and missile defense. It already sits on an order backlog of approximately $75.6 billion at the end of the first nine months of 2012.

Further, we expect shareholder return to continue to be shored up by the company's focus on debt repayment, its ongoing share repurchase program and the incremental dividend.

However, we are concerned about the budget deficits and political uncertainty that make future defense budgets vulnerable to cutbacks. Lockheed Martin presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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