Lockheed Martin Wins $211M Navy Deal To Upgrade F-35 Jets

Lockheed Martin Corp.’s (NYSE:LMT) Aeronautics business segment recently won a contract for offering Block 4.1 common capabilities pre-modernization efforts to support the preliminary design review of F-35 Lightning II jets. The deal will cater to the U.S. Air Force and the nation’s overseas partners.

Details of the Deal

Valued at $211.3 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. Work related to this deal will be carried out in Fort Worth, TX.

Fiscal 2018 research, development, test and evaluation (Air Force); and international partnership funds will be utilized to partially finance the task. The project is expected to be completed by July 2019.

F-35 Attributes

Lockheed Martin’s F-35 Lightning II is a single-seat, single-engine 5th Generation fighter aircraft that comes with an advanced stealth feature combined with enhanced fighter speed and agility, fully fused sensor information, network-enabled operations and advanced sustainment. In fact, three variants of F-35 are set to replace five fighter jets for the U.S. Air Force, Navy and Marine Corps as well as a variety of fighter jets for at least 10 other countries.

With Lockheed Martin being the primary partner, the F-35 program has been supported by an international team of leading aerospace majors. While, Northrop Grumman (NYSE:NOC) rendered its expertise in carrier aircraft and low-observable stealth technology to this program, BAE Systems’ (OTC:BAESY) short takeoff and vertical landing experience as well as air systems sustainment supported the jet’s combat capabilities. Moreover, Pratt & Whitney, a unit of United Technologies (NYSE:UTX) , provided F-35s with the F135 propulsion system, which is the world's most powerful fighter engine.

Recent Developments

The F-35 program is Lockheed Martin’s largest program, which generated 25% of its total net sales and 64% of Aeronautics division’s net sales in 2017. Evidently, the company’s top line grew 12% in the fourth quarter at its Aeronautics segment, primarily driven by the F-35 program.

Meanwhile, Lockheed Martin seems to be enjoying a steady flow of contracts from the Pentagon each year and 2018 is no exception. Last month, the company won a modification contract worth $1.5 billion for the purchase of long lead material and parts related to low rate initial production (LRIP) of F-35 Lightning II air systems. Considering these contract wins, we expect the Aeronautics unit to reflect similar solid performance in the first quarter of 2018 as well.

Moreover, production of F-35 is expected to continue for many years, given the U.S. government’s current inventory objective of 2,456 aircraft for the Air Force, Marine Corps and Navy; commitments from the company’s eight international partners and three international customers as well as expressions of interest from other countries.

Additionally, Trump recently proposed fiscal 2019 defense budget that provisions for a spending plan of $21.7 billion on Aircraft. In particular, the These developments reflect solid growth prospects for Lockheed Martin’s F-35 program, which in turn are likely to boost the company’s profit margin. Budget proposal hints at an increase in Lockheed Martin’s F-35 Joint Strike Fighter program and has allotted $10.7 billion for procurement of 77 F-35 Joint Strike Fighters.

Price Movement

In the past year, Lockheed Martin has gained about 27.9% compared with the broader industry’s rally of 47.2%.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 and 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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