Lockheed's Sikorsky Wins $232M Deal For CH-53K Choppers

Defense major Lockheed Martin Corp.’s (NYSE:LMT) business unit, Sikorsky Aircraft recently won a $232.1 million-worth modification contract from the U.S. Navy, for the procurement of 2 CH-53K system demonstration test article aircraft. Most part of the operation will be executed in Stratford, CT; Wichita, KS; West Palm Beach, FL and the rest at many other places across the U.S.

Work is scheduled to be complete by Feb, 2020. This contract, which will utilize fiscal 2016 research, development, test and evaluation funds, was awarded by the Naval Air Systems Command, Patuxent River, MD.

About CH-53K Aircraft

Originally developed and manufactured by Sikorsky, CH-53K is one of the world’s premier heavy lift helicopters, designed to be fully shipboard-compatible and capable of operating from austere and remote forward operating bases. Designated as System Demonstration Test Articles (SDTA), these choppers have the capacity to carry more than 27,000 pounds over a mission radius of 110 nautical miles – which is more than three times the external load carrying capacity of its predecessor – the CH-53E aircraft.

Apart from providing ballistic protection, this copter carries advanced lightweight armor that offers advanced protection to both passenger and crew. Among Lockheed’s CH-53 aircraft product line, the 53K version is the most advanced one. This is because of its 21^st century design which will allow militaries to move troops and equipments from ship to shore, and to higher altitude terrain, more quickly and effectively than ever before.

Our View

Last November, Lockheed Martin bought Sikorsky Aircraft – one of the primary industry-leading helicopter manufacturers in the U.S. – from United Technologies Corp. (NYSE:UTX) for $9 billion in cash. The deal positioned Lockheed as the world’s largest defense contractor with the addition of Sikorsky’s CH-53K, along with a handful of other combat as well as commercial choppers, to its helicopter product line. Notably, the CH-53K is currently the U.S. Marine Corps' critical land and sea based logistics connector.

We note that in the second quarter of 2016, Lockheed Martin witnessed year-over-year sales growth of 11%, majority of which was due to the Sikorsky buyout. Going ahead, management expects to witness even better cash flows from Sikorsky in 2018, indicating further expansion of the unit in the days to come. We expect the contract to be a major contributor to this projected expansion of the same.

Zacks Rank and Stocks to Consider

General Dynamics (NYSE:GD) currently carries a Zacks Rank #2 (Buy). A few better-ranked stocks in the aerospace and defense sector include Engility Holdings, Inc. (NYSE:EGL) , Leidos Holdings, Inc. (NYSE:LDOS) and Ducommun Inc. (NYSE:DCO) .

Engility sports a Zacks Rank #1 (Strong Buy) and has witnessed an 8.26% surge in its last five days’ stock price. On average, the company delivered a positive earnings surprise of 12.09% in the trailing four quarters.

Ducommun sports a Zacks Rank #1 and has witnessed a 3.40% surge in its last five days’ stock price. The company witnessed a 9.4% rise in its current year consensus estimates within last 60 days.

Leidos Holdings sports a Zacks Rank #2 and has witnessed a 3.44% surge in its last five days’ stock price. The company witnessed a 9.6% rise in its current year consensus estimates within last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

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