Can the F-35 Deal Boost Lockheed Martin Stock?

LMT stock - Can the F-35 Deal Boost Lockheed Martin Stock?

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Lockheed Martin’s (NYSE:LMT) business segment, Aeronautics, recently secured a modification contract for procuring support equipment related to low rate initial production of 11th lots’ F-35 Lightening II jets. The deal will cater to the U.S. Marine Corps and it should pique the interest of LMT stock investors.

Valued at $88 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. The majority of the work related to the deal will be executed in Orlando, FL; Redondo Beach, CA; Fort Worth, TX and Hartford, CT.

LMT will use fiscal 2016 and 2017 aircraft procurement (Marine Corps) funds to complete the task by September 2022.

Lockheed Martin: A Brief Note on the F-35

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. Currently, these jets are being used by defense forces of the United States and 11 other nations across the globe, largely owing to its advanced stealth, integrated avionics, sensor fusion, superior logistics support and powerful integrated sensors capabilities.

Our View on LMT Stock

Rising socio-political uncertainties worldwide has prompted nations to expand their military arsenals at an exponential rate, over the last decade. This, in turn, has been boosting the prospects of U.S. defense contractors, with the United States being the largest exporter of military weaponries worldwide. At present, Lockheed Martin is the Pentagon’s largest defense contractor and thus, LMT stock is supported by a constant inflow of contracts for the company’s varied defense programs from the Pentagon as well as its foreign allies.

The F-35 program, being Lockheed Martin’s largest program, generated 27% of its total consolidated net sales in the second-quarter 2018. The company’s Aeronautics division also realized solid year-over-year revenue growth of 8.1%, primarily driven by higher net sales of approximately $370 million from the F-35 program. Considering the latest contract win supporting the low-rate initial production (LRIP) of the 11th lot, we may expect the Aeronautics unit to deliver similar solid performance in the upcoming quarters as well.

Moreover, the 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 Lockheed Martin’s current eight international partners, overseas customers and increasing global demand.

Also, the fiscal 2019 defense budget, which was approved by the U.S. Senate in June 2018, provisioned for a spending plan of $21.7 billion on aircraft. Specifically, the new budget includes an allotment of $10.7 billion along with additional funding for the procurement of 97 Lockheed Martin’s F-35 Joint Strike Fighters. Going ahead, these projections and recent developments reflect solid growth prospects for LMT’s F-35 program, which, in turn, are likely to boost the company’s profit margin.

Price Movement in Lockheed Martin Stock

In a year’s time, LMT stock has gained about 10.5% compared with the industry’s growth of 22.1%. The underperformance may be due to 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.

LMT stock chart

Zacks Rank & Key Picks

Lockheed Martin stock currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are Aerojet Rocketdyne (NYSE:AJRD), Engility Holdings (NYSE:EGL) and Huntington Ingalls Industries (NSYE:HII).

While Aerojet Rocketdyne Holdings sports a Zacks Rank #1 (Strong Buy), Engility Holdings and Huntington Ingalls carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne came up with an average positive earnings surprise of 9.27% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings moved north 30.9% to $1.27 over the past 90 days.

Engility Holdings delivered an average positive earnings surprise of 19% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings climbed 16.8% to $2.02 over the past 90 days.

Huntington Ingalls Industries pulled off an average positive earnings surprise of 9.48% in the preceding four quarters. The Zacks Consensus Estimate for 2018 earnings moved up 3.7% to $17.24 over the past 90 days.

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