Lockheed (LMT) Wins $136M Deal To Aid Japan's Aegis System

Lockheed Martin Corporation’s (NYSE:LMT) business segment, Rotary and Missions Systems (RMS), recently secured a foreign military sales (FMS) contract for manufacturing DDG AEGIS weapon system J7 baseline. The weapon system will support the Japan Maritime Self Defense Force.

Valued at $135.8 million, the contract was awarded by the Naval Sea Systems Command, Washington, D.C. Work related to this is scheduled to be over by December 2018.

Majority of the work will be carried out in Moorestown, NJ; while the rest will be carried out at Dahlgren, VA and a few cities of Japan. FMS fund will be used partially to finance the task.

A Brief Note on Aegis & J7 Baseline

Manufactured by Lockheed Martin, Aegis is the world’s most advanced combat system that can simultaneously destroy land targets, submarines, and surface ships along with providing protection against aircraft, cruise missiles and ballistic missiles. The computer-based command and decision element is the core of the AEGIS combat system. The Aegis Ballistic Missile Defense (BMD) system is the primary sea-based component of the U.S. missile defense system.

The USS John Paul Jones (DDG-53) is a guided missile destroyer battleship, currently in service with the U.S. Navy. It is the third of the 75 planned Arleigh Burke-class of surface ships. While DD represents the basic destroyers per US Navy classifications, G stands for its guided missile armament design. It uses the latest evolution of Lockheed Martin’s Aegis Combat System to detect, track, launch a missile and successfully intercept a Medium Range Ballistic Missile target.

In a joint research program conducted by the United States and Japan, Lockheed Martin is developing an Aegis Baseline 9.C2 (BMD 5.1) variant computer program, referred to as J7, for deployment on Japan’s Aegis destroyers.

What’s Ahead for Lockheed Martin?

Lockheed Martin's RMS segment carries out some of the company's high-profile programs, including the Aegis Combat System, Littoral Combat Ship, MH-60 helicopter avionics along with military and commercial orders.

Presently, Lockheed Martin's Aegis system is the maritime weapon system choice for six powerful nations. Moreover, apart from its strong forte across the United States, the company also enjoys a solid position in the defense-field in the overseas as well. Therefore the latest contract will surely expand the company’s international footprint.

In August 2016, Lockheed Martin announced plans to expand the global Aegis fleet in the United States, Japan and the Republic of Korea, under a $490-million deal to develop integrated air and missile defense (IAMD) capabilities. We believe the latest contract will allow Lockheed Martin’s to achieve this target.

Needless to say, such contract wins will keep the company on a solid growth trajectory. Although, during third quarter 2017, the RMS unit delivered sales growth of mere 0.2%, management has enhanced its 2017 sales outlook for this segment. This indicates signs of growth prospects for the unit in the fourth quarter, in which contracts like the latest one will play a solid role.

Additionally, the 2018 fiscal defense bill worth $700 billion has further boosted the probability of increased order inflow from various departments of the U.S. Defense for major defense contractors like Lockheed Martin, Raytheon Company (NYSE:RTN) , Northrop Grumman Corporation (NYSE:NOC) , The Boeing Company (NYSE:BA) and others.

Price Performance

Lockheed Martin’s stock has returned 28% in last 12 months, underperforming the 43.3% rally of the industry it belongs to. This underperformance was mostly led by intense competition that the company faces in the domestic and international markets.

Zacks Rank

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

Wall Street’s Next Amazon (NASDAQ:AMZN)

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>