Lockheed Martin Wins $395M Deal For GPS III SV 09 And 10

Defense prime Lockheed Martin Corp.’s (NYSE:LMT) Space Systems business unit won a modification contract for the development of GPS III Space Vehicles (SV) 09 and 10. Valued at $395 million, the contract was awarded by the Space and Missile Systems Center, Los Angeles Air Force Base, CA.

Work, expected to be completed by Aug 8, 2022, will be executed at Littleton, CO. The contract will utilize fiscal 2014 and 2015 advanced procurement funds as well as fiscal 2016 space procurement funds.

GPS III and Lockheed Martin

Global Positioning System (GPS), originally developed by the U.S. Department of Defense (DoD), is a space-based navigation system. GPS III is the next-generation satellite version of original GPS.

GPS III promises more advanced navigation services and can deliver signals three times more accurate than the current GPS spacecraft. Due to its advanced design, GPS III has operational life expectancy of over 15 years, more than 25% longer than the newest Block IIF satellites.

In 2008, Lockheed Martin was awarded the original contract for the design, development and production of the GPS III Non-Flight Satellite Testbed (GNST) and the first two GPS III satellites (SV 01–02), with priced options for up to 10 additional satellites.

Recently, Lockheed Martin delayed the delivery of the first GPS III satellite to the U.S. Air Force from August to December, citing a problem detected in the navigation payload. The satellite’s launch is now expected sometime in the first half of 2017, marking a delay of two years from the oiginal schedule.

Our View

Being the prime contractor in the government’s $5 billion GPS III program, Lockheed Martin's Space Systems business segment will likely get a major boost from the latest modification. In the second quarter of 2016, revenues at the segment increased by $25 million. Management has also raised the 2016 sales outlook for the segment by $50 million.

Earlier this year, the Space and Missile Systems Center awarded three GPS III SVs 11+ Phase 1 Production Readiness Feasibility Assessment contracts, one each to Lockheed Martin, The Boeing Company (NYSE:BA) and Northrop Grumman Corp (NYSE:NOC) . These contracts aim at evaluating each of the contractors' readiness efforts in preparation for the Phase 2 competition, production of next-generation SVs, and demonstration of navigation payload capability.

At the end of the 36-month period, the Air Force will choose one of these three defense primes for awarding a contract to build as many as 22 new GPS III satellites. Seeing that the winner will capture a huge share in the defense space, the companies are currently in head-to-head competition over the deal.

Zacks Rank & Stocks to Consider

Lockheed Martin currently carries a Zacks Rank #4 (Sell), while both Boeing and Northrop carry a Zacks Rank #3 (Hold). A better-ranked stock in the aerospace and defense sector is Engility Holdings, Inc. (NYSE:EGL) , with a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

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