Lockheed (LMT) Wins $54M Deal To Aid THAAD Missile System

Lockheed Martin Corporation’s (NYSE:LMT) business segment, Missiles and Fire Control (“MFC”), recently secured a modification contract for manufacturing additional missile round pallets, spare parts and support equipments for the Terminal High Altitude Area Defense (“THAAD”) system. Work related to the deal is scheduled to be completed by April 30, 2021.

Details of the Deal

Valued at $53.5 million, the contract was awarded by the Missile Defense Agency, Huntsville, AL. Operations related to the contract will be carried out in Dallas and Lufkin, TX; Camden, AZ; Huntsville, AL; and Sunnyvale, CA.

Lockheed Martin will utilize fiscal 2017 and 2018 procurement funds to finance the task.

A Brief Note on THAAD

THAAD system is an anti-missile system that uses a hit-to-kill approach to shoot down short, medium and intermediate ballistic missiles in their terminal phase. It is the only missile defense system with the operational flexibility to intercept both within and outside the Earth’s atmospheres for providing versatile capability to the war fighter.

Impressively, the system has a track record of 100% mission success in flight testing since 2005.

Our View

Being Pentagon’s largest contractor, Lockheed Martin enjoys a steady flow of contracts from the Department of Defense each year and 2018 has been no exception. A week back, the company won a $522-million contract for producing Trident II (D5) missiles. In the previous month, Lockheed Martin secured a $524-million PAC-3 Missiles deal. Toward the end of January 2018, it clinched $459-million deal for the production and delivery of interceptors for the THAAD weapon system.

Lockheed Martin’s MFC segment, which recorded sales of $2.3 billion in fourth-quarter 2017, reflected a year-over-year improvement of 31%. The aforementioned contract wins, along with the latest one, will significantly boost this segment’s growth and we may expect its first-quarter 2018 results to reflect similar top-line improvement.

Moreover, in February 2018, President Trump proposed fiscal 2019 defense budget that provisions for an investment plan of $6 billion for varied missile programs. Lockheed Martin, is expected to gain significantly from this provision, which it includes an investment plan of $1.1 billion for 82 THAAD missiles and $1.7 billion for the procurement of 43 AEGIS Ballistic Missile Defense systems.

Further, global rocket and missile market is projected to grow at a CAGR of 4.74% during 2017-2022 to reach a value of $70 billion by 2022 (as per Markets and Markets research firm). Such projections reflect improved growth opportunities for missile-makers like Lockheed Martin, in the coming days.

Price Movement

Lockheed Martin’s stock has returned about 28.7% over a year, compared with the broader industry’s gain of 48.4%. 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 Boeing (NYSE:BA) , Huntington Ingalls (NYSE:HII) and Curtiss-Wright Corporation (NYSE:CW) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boeing recorded an average positive earnings surprise of 20.69% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by $3.06 to $14.05 in the last 90 days.

Huntington Ingalls recorded an average positive earnings surprise of 3.85% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by $5.44 to $17.38 in the last 90 days.

Curtiss-Wright Corporation recorded an average positive earnings surprise of 15.06% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 63 cents to $5.80 in the last 90 days.

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