Lockheed Martin Wins $928M Hypersonic Strike Weapon Contract

Lockheed Martin Corp.’s (NYSE:LMT) segment, Space Systems, recently secured a $928-million modification contract for the development of hypersonic conventional strike weapon. The contract was awarded by the Air Force Life Cycle Management, Eglin Air Force Base, Florida.

Details of the Deal

Per the terms, Lockheed Martin will offer the design, engineering, systems integration, test, logistics planning, and aircraft integration support of all the elements of a hypersonic, conventional, air-launched, stand-off weapon.

Operations related to the deal will be carried out in Huntsville; AL. Lockheed Martin will utilize fiscal 2018 research, development, test and evaluation funds to finance the task.

A Brief Note on Hypersonic Weapon

A hypersonic weapon, considered as high-speed maneuvering weapon, is a missile that travels five times faster than the speed of sound. Its extraordinary speed and precision help a hypersonic weapon to hit any target, anywhere in the world, in less than an hour.

According to CNBC, currently two types of hypersonic weapons are in development: hypersonic cruise missiles and hypersonic glide vehicles. While, hypersonic cruise missiles can fly at altitudes up to 100,000 feet, hypersonic glide vehicles can fly above 100,000 feet.

Our View

Reportedly, the United States, Russia and China are the forerunners in developing hypersonic weapons. However, both Russia and China have moved ahead of the United States in hypersonic weapon technologies innovation. As a result, in case such a weapon is deployed on the U.S. soils, the nation doesn’t have sufficient defense to protect itself. In fact, Air Force Gen. John Hyten, himself has expressed doubt regarding the U.S.’s ability to defend itself against such weapon. This in turn might constrain the U.S. military’s global presence and impede its ability to project force in key regions.

Consequently, the U.S. government is pursuing development of a range of hypersonic weapons to ensure superiority over China and Russia’s growing hypersonic arsenal. This is evident from the fiscal 2019 defense budget that provisions an increase in the research and development funds by $18 billion, which includes upgrading the country’s hypersonic technology. Such investments on hypersonic weapons along with the latest contract win will surely boost Lockheed Martin’s top line in the days ahead.

Price Movement

Lockheed Martin’s stock has returned about 30.2% over a year, compared with the broader industry’s gain of 50.8%. 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 Curtiss-Wright Corporation (NYSE:CW) , Huntington Ingalls (NYSE:HII) and Boeing (NYSE:BA) . While Curtiss-Wright sports a Zacks Rank #1 (Strong Buy), Huntington Ingalls and Boeing carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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.

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.

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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