Lockheed Martin Wins $200M Deal To Upgrade THAAD And PATRIOT

Lockheed Martin Corp. (NYSE:LMT) recently secured a $200-million modification contract for enhancing the Terminal High Altitude Area Defense (THAAD) and Phased Array Tracking to Intercept of Target (PATRIOT) Advanced Capability-3 (PAC-3) missile segment. Per the terms, Lockheed Martin will also help to develop Patriot's Launch on Remote (LOR). The contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, Alabama.

Operations related to the deal will be carried out in Grand Prairie, TX. Lockheed Martin will utilize fiscal 2018 research, development, test and evaluation funds to partially fund the task. Work related to the deal is scheduled to be completed by Feb 28, 2022.

A Brief Note on THAAD and PATRIOT

The THAAD 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 has a 100% mission success in flight testing since 2005.

Whereas, PAC-3 missile system is a long range, air-defense and medium to high-altitude guided missile system, designed to counter tactical ballistic missiles, cruise missiles and advanced aircraft.

What’s Favoring Lockheed Martin?

Being the Pentagon’s largest contractor, Lockheed Martin regularly wins contracts for its varied missile segments that include both THAAD and PAC-3 missiles. In February, the company won a $524-million contract for the production of PAC-3 enhancement missiles and toward the end of January 2018, it clinched $459-million deal for the production and delivery of interceptors for the THAAD weapon system.

Such inflow of orders for its varied missiles boosts Lockheed Martin’s top line. Evidently, the company’s Missiles and Fire Control (MFC) segment recorded net sales of $2.3 billion in fourth-quarter 2017, reflecting a solid 31% improvement from the year-ago quarter.

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 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. We believe these developments, along with the latest contract wins, will enable Lockheed Martin’s MFC segment to deliver similar solid performance in first quarter as well.

Price Movement

Lockheed Martin’s stock has returned about 29.9% over a year, compared with the broader industry’s gain of 49.1%. 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 carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Huntington Ingalls (NYSE:HII) , Curtiss-Wright Corporation (NYSE:CW) and Boeing (NYSE:BA) . While Curtiss-Wright sports a Zacks Rank #1 (Strong Buy), Huntington Ingalls and Boeing carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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 $4.94 to $17.38 in the last 90 days.

Curtiss-Wright recorded an average positive earnings surprise of 15.06% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 52 cents to $5.79 in the last 90 days.

Boeing posted an average positive earnings surprise of 20.69% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by $2.01 to $14.05 in the last 90 days.

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