Lockheed Martin Wins $80M Deal To Strengthen Missile Defense

Defense bellwether Lockheed Martin Corporation’s (NYSE:LMT) business segment, Space Systems, recently secured a contract for conducting the Airborne Launch Control System Replacement (ALCS-R) program. Work related to the deal is scheduled to be over by Oct 2, 2020.

Details of the Deal

Valued at $80.8 million, the contract was awarded by the Air Force Nuclear Weapons Center, Hill Air Force Base, UT. Per the deal, Lockheed Martin will conduct technology maturation and risk reduction for delivering a preliminary design and developing a fully functional prototype. The company will utilize fiscal 2017 and 2018 research, development, test, and evaluation funds to complete the task at Littleton, CO.

Moreover, through this agreement, ALCS-R aims to replace the legacy Airborne Launch Control System (ALCS) with an affordable system, to support the Minuteman III intercontinental ballistic missile weapon system. This replacement is expected to be complete by 2036. This in turn will offer a solution to meet the survivable launch platform — airborne fire control requirements for the ground based strategic deterrent weapon system through 2075.

A Brief Note on Minuteman III

The Minuteman III is a strategic weapon system of the United States that uses a ballistic missile of intercontinental range. Through the state-of- -art improvements, the Minuteman system has evolved to meet new challenges. Modernization programs have expanded targeting options and improved accuracy and survivability of this system.

Our View

ALCS help in conducting missile tests and deploying missiles successfully. During loss of command capability between the launch control center and remote missile launch facilities ALCS automatically assume command and control of the isolated missile or missiles.

It is imperative to mention in this context that Lockheed Martin enjoys a legacy in developing operational intercontinental ballistic missiles (ICBMs) and has been continuously supporting the Air Force’s ICBM mission since the beginning, as the developer of the Atlas, Titan, MX Peacekeeper and Small ICBMs. Also the company is the leading provider of ground command and control systems for today’s Minuteman III.

With increasing geopolitical tensions across the globe, it has become a necessary mandate for nations to stock up their arsenals to defend terrorist attacks. For the United States, the frequent missile tests conducted by North Korea have been sending a strong message of hostility toward America for past few months. As a result, the latter has been enthusiastically strengthening its missile stack in recent periods. The latest contract for ALCS-R reaffirms this fact.

With Lockheed Martin being the largest defense contractor worldwide and given its combat-proven military equipments, we can expect more such contracts to usher in from Pentagon, which in turn will substantially boost its growth trajectory.

Moreover, the recently approved fiscal 2018 defense policy bill worth $700 billion also buoys optimism for investing in major defense stocks. Therefore the time is ripe to add defense primes like Lockheed Martin, The Boeing Company (NYSE:BA) and Northrop Grumman Corporation (NYSE:NOC) in your watchlist.

Price Movement

Lockheed Martin’s stock has returned 32.2% over a year, underperforming the 50.8% rally of the industry it belongs to. This may have been caused by the company’s F-35 program, which despite being a prime project of the U.S. government has been repeatedly criticised for being overtly expensive.

Zacks Rank & Stocks to Consider

Lockheed Martin presently carries a Zacks Rank #4 (Sell). A better-ranked stock in the same space is General Dynamics Corporation (NYSE:GD) , which holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

General Dynamics has surpassed the Zacks Consensus Estimate in the past four quarters with an average positive earnings surprise of 3.67%. The company boasts a strong long-term growth rate of 8.50%.

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