Boeing-Lockheed JV Wins $967M Deal for Launch System Prototype

The subsidiary of United Launch Alliance (“ULA”) — a joint venture (JV) between Lockheed Martin Corp. LMT and The Boeing Co. BA — recently secured a contract involving the Evolved Expendable Launch Vehicle (EELV) program. Per the terms of the agreement, United Launch Services, LLC (“ULS”) — the subsidiary — will develop a Launch System Prototype for the EELV program.

Valued at $967 million, the contract was awarded by the Launch Systems Enterprise Directorate, Space and Missile Systems Center, Los Angeles Air Force Base, California. Work related to the deal is scheduled to be completed by Mar 31, 2025 and will be executed in Centennial, CO and Decatur, AL.

Significance of the EELV Program

The EELV is a funded U.S. Air Force (USAF) launch system program that provides space launch services for national security space (NSS) payloads. The program was initiated in the 1990s with the aim to make government space launches more reasonably priced and dependable.

Notably, these launch systems are the primary methods for launching U.S. military satellites. The USAF intends to employ the EELV family of launch vehicles until at least 2030.

Rationale Behind the Deal

ULA is the nation’s most experienced space launch company with more than 120 consecutive launches and a 100% mission success rate. In fact, its launch vehicles have played a major role in the U.S. space ventures, given its highest commitment to crew safety and mission success.

Currently, the EELV program aims at leveraging commercial space launch solutions in order to have at least two domestic, commercial launch service providers, which also meet the requirements of National Security Space (NSS). With this aim in view, NASA is engaged in developing at least three EELV Launch System prototypes as early as possible, allowing those launch systems to mature prior to selection of two NSS launch service providers for Phase 2 launch service procurements, starting in 2020. This program strategy combined with ULA’s expertise in space must have led the Pentagon to offer this award to ULS.

Benefits of the Deal

With increasing number of threats in the cyber security space, military satellites have emerged as an integral component for national security. This has all the more bolstered America’s need to strengthen its space system. While human exploration of the solar system has been the primary catalyst behind the development of Space Launch System (SLS), launch vehicles also play a crucial role in launching satellites.

Therefore, in the wake of the recent rise in geopolitical tensions across the globe along with President Trump’s expanded defense budget space launch system programs are gaining increased traction. In line with this, it is imperative to mention the fiscal 2019 defense budget, which provisions for space investment of $4.3 billion to strengthen the nation’s space capabilities, includes launch vehicles and satellites.

The latest contract win bears further testament to the U.S. government’s initiatives to boost the nation’s space security.  Being the two most prominent defense contractors in the United States, Boeing and Lockheed Martin also contribute effectively to the SLS program. To this end, we may expect ULS to win more similar contracts in coming days.  

Price Movement

In a year’s time, shares of Lockheed Martin have gained 5.8% compared with the industry’s 17.4% rally. The underperformance can be attributed to intense competition in domestic and international markets.

Meanwhile, Boeing’s stock has rallied 40.6% in the past year, outperforming the industry’s growth. This could be due to financial flexibility provided by the company’s strong balance sheet and cash flows in matters of incremental dividend, ongoing share repurchases and earnings accretive acquisitions.

Zacks Rank & Key Picks

Boeing currently has a Zacks Rank #3 (Hold), while Lockheed Martin carries a Zacks Rank #2 (Buy). A few other top-ranked stocks from the same industry are Textron Inc. TXT and Huntington Ingalls Industries, Inc. HII. While Textron sports a Zacks Rank #1 (Strong Buy), Huntington Ingalls carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Textron delivered an average positive surprise of 20.44% in the trailing four quarters and its long-term earnings growth is pegged at 11.4%. The Zacks Consensus Estimate for 2018 has moved up 5.4% to $3.33 over the past 90 days.

Huntington Ingalls delivered an average positive surprise of 9.48% in the preceding four quarters and its long-term earnings growth is pegged at 15.0%. The Zacks Consensus Estimate for 2018 has moved up 1.5% to $17.24 over the past 60 days.

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