Since its mega-merger with Martin Marietta for $10 billion in 1994, Lockheed Martin (LMT) has been the No. 1 U.S. defense contractor (and industry juggernaut).
It’s no surprise, then, that it outlasted all other suitors in the bid to get one of aviation’s most iconic prizes, Sikorsky helicopters.
Since 1929, Sikorsky had been a division of United Technologies (UTC), but the legend of Igor Sikorsky — the man — goes back a bit further.
Sikorsky designed and flew the world’s first multi-engine fixed-wing aircraft. He also built the first airliner. And this was in Russia, before Lenin had begun his revolution.
By 1919, Sikorsky realized that Russia had bigger problems than staying on the vanguard of manned flight, so he set off for America.
In the U.S., he started the Sikorsky Aircraft Corporation in 1923, and by the ’30s he was selling Pan Am its trademark flying boats.
But, it was in 1939 that he made his mark in the aviation industry, one that still resonates today. He created the first commercially viable helicopter. In 1942, the Sikorsky R-4 became the first mass-produced helicopter in the world.
Since then, Sikorsky and helicopters have been synonymous in aviation’s lexicon.
But, UTC has been mulling over whether to spin off or sell the division, as it has lost some of its value in the larger UTC empire. Margins have declined rapidly and business has been slowing.
The oil crash at the end of 2014 was the last straw, since aside from some decent contracts with the military, most of its helicopter sales come from oil companies and other industrial clients. According to the Wall Street Journal, non-military transport helicopters made up about 30% of Sikorsky’s business.
Given the long recession, commercial helicopter sales had been a slow market, and losing the oil sector for the intermediate to long term sealed the deal. Granted, UTC didn’t have to sell this division (which has been a part of the company for 86 years), but if it could get the right price, management wasn’t going to turn down the offer.
LMT has been back on a growth track since 2013 and is always looking to diversify its defense base. Sikorsky would add a lot of value to its aviation division. LMT currently builds and supports the F-16, F-22 and the F-35 fixed-wing fighters, as well as the rugged A-10 and P-3.
Its newest endeavor is unmanned helicopters — e.g., the K-MAX — which are seeing increasing opportunities in the battle theater. The company also builds the MH-60, one of the most popular naval helicopters in production.
Adding the Sikorsky team gets LMT a commercial portfolio to add to its existing defense portfolio, plus one of the top helicopter R&D teams in the world to add value to current and future projects.
LMT remains an A-rated stock as the economy strengthens and global threats continue to make the front page almost daily.
What’s more, LMT throws off a dividend of almost 3% with a P/E of 18, which is lower than the average P/E of the S&P 500, but with less risk. And, LMT’s business is done on a much longer-term basis, so while it isn’t always a fast grower, it’s steady. Its more a stock you look at once or twice per year, rather than every quarter.
As long as we have a defense sector, LMT will be a major part of it, even moreso now with Sikorsky in the mix.
As of this writing, Louis Navellier did not hold a position in any of the aforementioned securities.
