Lockheed Martin Wins $175M Deal for F-35 Component Repairs

Lockheed Martin Corp.’s LMT Aeronautics business division recently won a $175.3-million modification contract to support the F-35 Lightning depot implementation plan for the U.S. Air Force, Marine Corps, Navy and non-Department of Defense (DoD) participants. The contract was awarded by the Naval Air Systems Command, Patuxent River, MD.

Details of the Deal

Per the terms, Lockheed Martin will provide development, testing and activation services for thirteen different F-35 component repair capabilities in support of the implementation plan. The modification includes 46.9% of the work for the U.S. Air Force, 23.5% for the U.S. Navy, 23.5% for the U.S. Marine Corps and 6.1% for the non-DoD participants.

Work related to the deal will be performed in Nashua, NH; Torrance, CA; Fort Worth, TX and other various locations across the United States. The tasks are expected to get completed by November 2021. Lockheed Martin will utilize fiscal 2018 aircraft procurement (Air Force, Navy, and Marine Corps) and non-DoD funds for completing the task.

Benefits of F-35 Joint Strike Fighter Program

The F-35 Lightning is a supersonic, multi-role fighter jet, which represents a quantum leap in air-dominance capability, offering enhanced lethality and survivability in hostile, anti-access airspace environments. Its advanced stealth allows pilots to penetrate into areas without being detected by enemy radars. It is being used by the defense forces of the United States and 11 other nations, worldwide, largely due to its advanced stealth, integrated avionics, sensor fusion, superior logistics support and powerful integrated sensors capabilities.

What’s Favoring Lockheed Martin?

The F-35 program is Lockheed Martin’s largest program, which generated 24% of its total consolidated net sales in first-quarter 2018. Moreover, higher sales at Aeronautics, primarily attributable to higher sales registered for the F-35 program and increased volume on F-35 sustainment activities during the same time frame, enabled its Aeronautics segment’s revenue to grow 7% year over year to $4.4 billion. As of May 14, 2018, the company successfully delivered more than 290 F-35 jets to the United States and its allies.

Lockheed Martin, being one of the Pentagon’s prime contractors, enjoys a steady flow of contracts each year and the second quarter of 2018 has not been any exception either. In June itself, the company secured a deal worth $736 million to support the F-35 Lightning II program and a contract worth $503 million for providing air vehicle initial spare parts in support of the F-35 program. Considering the frequent order inflows, we expect its Aeronautics unit to reflect similar solid performance in the coming quarterly results as well.

Moreover, production of F-35 is expected to rise in the years ahead, given the U.S. government’s current inventory objective of 2,456 aircraft for the Air Force, Marine Corps and Navy along with commitments from the company’s eight international partners, overseas customers and rising demand on a global scale.

Furthermore, the recently approved fiscal 2019 defense budget provisions for a spending plan of $21.7 billion on Aircraft. The budget proposal hints at a prospective increase in Lockheed Martin’s F-35 Joint Strike Fighter program that has been allotted $10.7 billion along with additional funding for the procurement of 97 F-35 Joint Strike Fighters. Evidently, these developments reflect solid growth prospects for Lockheed Martin’s F-35 program going ahead, which, in turn, are likely to boost the company’s profit margin.

Price Movement    

Lockheed Martin’s stock has improved about 7.7% in the last year compared with the industry’s growth of 29.5%. The underperformance may have been caused by the intense competition that the company faces in the aerospace-defense space for its broad portfolio of products and services, both domestically as well as internationally.

Zacks Rank & Key Picks

Lockheed Martin currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are Northrop Grumman NOC, Textron TXT and Wesco Aircraft Holdings WAIR.

While Northrop Grumman sports a Zacks Rank #1 (Strong Buy), Textron and Wesco Aircraft Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Northrop Grumman delivered an average positive earnings surprise of 13.87% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 6.24% to $16.50 in the last 90 days.

Textron came up with an average positive earnings surprise of 16.64% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 2.94% to $3.15 in the last 90 days.

Wesco Aircraft Holdings’ long-term growth rate is pegged at 12%. The Zacks Consensus Estimate for 2018 earnings has risen by 10% to 77 cents in the last 90 days.

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