Lockheed Unit Wins $154M Deal For Navigation System Upgrade

Lockheed Martin Corp.’s (NYSE:LMT) Rotary and Mission Systems (RMS) segment recently secured a contract for providing U.S. and U.K. Trident II (D5) Strategic Weapon System Shipboard Integration Increment 8 as well as Columbia and Dreadnought efforts for the navigation subsystem. Work related to the deal is scheduled to be completed by Dec 31, 2020.

Details of the Deal

Valued at $154.4 million, the contract was awarded by the Strategic Systems Program, Washington, DC. Majority of the work will be carried out in Mitchel Field, New York and Huntington Beach, CA. Lockheed Martin will utilize fiscal 2018 other procurement (Navy) funds, U.K. funds as well as fiscal 2018 research, development, test, and evaluation (Navy) funds to complete the task.

Through this contract, the company will provide the required navigation hardware and software design, testing, installation and deliverables for the shipboard integration increment. It will also deliver correlating fleet support services for the current fleet ballistic missile navigation subsystem.

In particular, the contract will provide U.S. and U.K. Inertial Navigation System and gyro modification and repair, Columbia navigation subsystem development and material procurements, modernization efforts for shipboard integration program, including U.S. and U.K. trainer maintenance and development. Also, long lead material procurement for Ohio and Vanguard transducers and long-range software modernization activities along with a portable data collection system will be delivered.

Our View

Lockheed Martin's RMS business carries out some of the company's high-profile programs. These include the Aegis Combat System, Littoral Combat Ship, MH-60 helicopter avionics along with military and commercial orders. The business supports the Air Force, Army, Coast Guard, Marine Corps, Navy and Missile Defense Agency of the United States, as well as intelligence, civil, commercial and international military customers.

Although, during third quarter 2017, the RMS unit witnessed sales growth of a mere 0.2%, management has raised its 2017 sales outlook for this segment. This indicates growth prospects for the unit in the fourth quarter, in which contracts like the latest one will play a major role.

Additionally, per a report by Markets and Markets research firm, the rocket and missile market is projected to witness a CAGR of 4.7% during 2017-2022 to $70 billion. This growth can be attributed to the increasing geopolitical conflicts, war and terrorism, which are driving the demand for rockets and missiles globally. Considering the fact that Trident II (D5) is one of the most advanced U.S. Navy’s missile system, boasting a high demand, we expect Lockheed Martin to win more such contracts associated with it. This, in turn, will enable the company to capture larger shares in the expanding rocket and missile market.

Price Movement

Lockheed Martin’s stock has moved up about 27.4% in a year compared with the broader industry's gain of 43.1%. This underperformance may have been caused by the intense competition that the company faces for its broad portfolio of products and services in the domestic and international markets.

Zacks Rank & Key Picks

Lockheed Martin carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the Aerospace sector are Curtiss-Wright Corporation (NYSE:CW) , Leidos Holdings, Inc. (NYSE:LDOS) and Huntington Ingalls Industries, Inc. (NYSE:HII) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Curtiss-Wright Corporation delivered an average positive earnings surprise of 11.78% in the past four quarters. The Zacks Consensus Estimate for current-quarter earnings rose 7 cents over the last 60 days.

Leidos Holdings pulled off an average positive earnings surprise of 14.81% in the past four quarters. The Zacks Consensus Estimate for current-year earnings has risen 14 cents in the past 60 days.

Huntington Ingalls delivered an average positive earnings surprise of 14.22% in the last four quarters. The Zacks Consensus Estimate for current-year earnings has risen 8 cents in the past 30 days.

Zacks Editor-in-Chief Goes "All In" on This Stock

Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.

Download it free >>