Lockheed Martin (LMT) Unit Wins $122M Deal From U.S. Navy

Lockheed Martin Corp.’s (NYSE:LMT) business unit, Rotary and Mission Systems has won a modification contract to exercise an option period for the procurement of Technical Insertion (TI) 18-20 Acoustic Rapid Commercial Off-the-Shelf Insertion (A-RCI) engineering services.

Contract Details

Valued at $122.3 million, this contract has been awarded by the Naval Sea Systems Command, Washington, DC. The majority of the work will be carried out in Manassas, VA, while the rest will be executed in Clearwater, FL.

Lockheed Martin will utilize fiscal 2018 research, development test and evaluation funds for the Navy to complete the work by December 2018.

A Brief Note on A-RCI Systems

A-RCI is an open-architecture sonar system that uses legacy sensors. It also replaces central processors with commercial off-the-shelf (COTS) computer technology and software within submarines. This system helps the U.S. Navy in searching, detecting and tracking submarines and surface vessels in open-ocean and littoral sea environments without being counter-detected. Additionally, it facilitates covert execution of Naval Special Warfare missions as well as under-ice operations.

In the 1990s, Lockheed Martin unveiled A-RCI Systems that allowed frequent hardware and software upgrades. The system was highly effective and offered improved acoustic quieting measures at a far lower cost. Notably, the TI 18-20 A-RCI engineering services provide engineering development to support modernization requirements.

Our View

With the rapid rise in terrorist attacks over the last decade, the U.S. Navy’s focus has shifted to littoral waters, the shallow areas near coastlines. In fact, patrolling in these areas has become need of the hour to defend against small subs, underwater mines and fast attack boats. Consequently, timely detection and localization of quiet subs in the especially noisy shallow-water sonar field has made the A-RCI submarine sonar system all the more critical. Additionally, constant upgrades of the system have made it more valuable for the nation’s naval base and an attractive choice of defense equipment for the U.S. allied countries.

Furthermore, Lockheed Martin's Rotary and Mission Systems business carries out some of the company's high-profile programs. These include the Aegis Combat System, Littoral Combat Ship, MH-60 helicopter avionics along with military and commercial orders. The segment generated revenues of $3.4 billion in the third quarter of 2017, reflecting almost 27.9% of its total revenues.

Markedly, being the Pentagon’s prime defense contractor, Lockheed Martin enjoys a lion’s share of the aerospace-defense industry in the United States.

Moreover, the recently passed fiscal 2018 defense policy that authorized the United States’ defense spending worth $700 billion has enhanced the prospect of increased order flow from Pentagon for major defense contractors like Lockheed Martin, Raytheon Company (NYSE:RTN) , Northrop Grumman Corporation (NYSE:NOC) , The Boeing Company (NYSE:BA) and others.

Considering the aforementioned developments, the company is expected to win more of such contracts in days ahead, given that most of its programs are the top priorities of Pentagon.

Price Movement

Lockheed Martin’s stock was up about 18.9% in a year, underperforming the broader industry’s gain of 34.3%. This could have been caused by the intense competition that the company faces for its broad portfolio of products and services domestically as well as internationally.

Zacks Rank

Lockheed Martin carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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