Lockheed Martin's Unit Wins $260M Deal To Upgrade P-38 Jet

Defense major Lockheed Martin Corp.’s (NYSE:LMT) Aeronautics business division recently secured a modification contract, under which it will upgrade four P-3B aircraft, to support the government of Greece. Work related to this deal is expected to be over by December 2023.

Details of the Deal

Valued at $260 million, the contract was awarded by the Naval Air Warfare Center Aircraft Division, Lakehurst, NJ. Per the terms of the agreement, Lockheed Martin will offer structural mid-life upgrades, tailored-phased depot maintenance, a country-specific designed mission integration and management system as well as new avionics for the aircraft. Notably, the mid-life upgrade will extend the service life of each aircraft by 15,000 flight hours.

Majority of the work for this contract will be executed in Marietta, GA and Schimatari, Greece. Foreign military sales (FMS) funds will be used to partly finance the deal.

A Brief-Note on P-38

Manufactured by Lockheed Martin, P-38 Lightning is a fighter aircraft. It comes with two supercharged engines and a potent mix of four 50-caliber machine guns and a 20-mm cannon.

Our View

Lockheed Martin is the largest U.S. defense contractor with a platform-centric focus that guarantees a steady inflow of follow-on orders from a leveraged presence in the Army, Air Force, Navy and IT programs. Its Aeronautics segment is engaged in major defense programs of the nation like F-35 Lightning II Joint Strike Fighter; C-130 Hercules; F-16 Fighting Falcon; F-22 Raptor; and C-5M Super Galaxy. Notably this segment is a primary growth driver for Lockheed Martin.

Moreover, FMS has been a strong forte for its growth trajectory, with the company witnessing strong demand for its equipment, ranging from C-130J aircraft in France and Germany to helicopters in Poland to missile defense systems in the Asia-Pacific, Europe, and Middle East regions. In line with this, in October, Lockheed Martin signed a deal worth $3.8 billion, with the Bahrain Defense force, under which the latter will buy 16 upgraded F-16 aircraft. Surely, the deal will boost Lockheed Martin’s sales at the Aeronautics business division.

Notably, this segment recorded 14% sales growth in the third quarter. It goes without saying that such consistent inflow of contracts both domestic as well as overseas like the latest one for P-38 upgrades will provide further impetus to this division’s sales growth in the coming quarters. This in turn will allow the company to retain its position as the largest defense contractor of Pentagon.

Price Performance

Shares of Lockheed Martin have rallied 29.6% over a year, underperforming the industry’s 42.3% gain. This could be because the earlier budget cuts have put pressure on the top line although the present defense budget is more in favor of the sector. Moreover, Lockheed Martin's performance lagged the likes of Huntington Ingalls Industries, Inc. (NYSE:HII) , Leidos Holdings, Inc. (NYSE:LDOS) and The Boeing Co. (NYSE:BA) that have outperformed the industry.

Zacks Rank

Lockheed Martin currently 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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