Raytheon-Lockheed Martin JV Wins $134M Army Deal For Javelin

Javelin, a joint venture (JV) formed by defense majors Raytheon Company (NYSE:RTN) and Lockheed Martin Corp. (NYSE:LMT) , recently won a modification contract for procuring Javelin containerized all-up rounds, command launch units, Javelin vehicle launcher-electronics and associated non-recurring engineering. Work related to the deal is scheduled to be over by Aug 31, 2020.

Valued at $133.9 million, the contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL. The deal falls under the foreign military sales (FMS) program of the United States and will aid nations like Jordan, Qatar and Taiwan.

Work will be carried out in Tuscon, AZ. The project will use other procurement funds of fiscal 2017.

A Brief Note on Javelin

Javelin is the world's first one-man-portable, fire-and-forget, multipurpose missile system. This compact, lightweight missile was designed for one-soldier operations in all situations. It enhances direct-fire capability against armored vehicles, buildings and field fortifications. Armed forces all over the world have adopted Javelin. In fact, it is currently serving the U.S. Army and Marine Corps as well as 15 allied militaries.

Raytheon and Lockheed Martin have been producing the Javelin handheld missile system through the JV since as early as the mid-1990s. Impressively, this combat proven weapon system boasts a reliability rate of more than 94%.

Our View

While, Raytheon is one of the best-positioned large-cap defense players in the United States, Lockheed Martin is the nation’s largest defense contractor. FMS contracts is a vital growth driver for both the defense majors.Notably, both Raytheon and Lockheed Martin are two of the three major contractors involved in the $110 billion arms deal that President Trump signed in May, with Saudi Arabia.

Going ahead, Raytheon continues to see significant overseas demand for early warning radars, as well as for TPY-2 X-Band radars between 2018 and2020. To meet this demand, Raytheon is upgrading its radar systems. On the other hand, the U.S. administration in March announced plans to pursue the $5 billion sale of 19 F-16 jets to Bahrain– a deal which got stalled owing to human rights concerns last year. On approval, the Bahrain deal will benefit Lockheed Martin substantially.

Therefore, it is evident that both the companies enjoy substantial demand for their weaponries in the foreign market and given the rising geopolitical conflicts worldwide, demand is likely to escalate in the days ahead. The latest contract is reflective of the rise in demand, which willdrivegrowth for the likes of Raytheon and Lockheed Martin.

Price Movement

Lockheed Martin’s stock has returned 19.8% in the last one year, underperforming the 34.8% rally of the industry it belongs to. This might be attributed to the company’s F-35 program, which, despite being a prime project of the U.S. government, has been repeatedly criticisedfor being overtly expensive. Moreover, Lockheed Martin faces stiff competition from other defense majors like The Boeing Company (NYSE:BA) and Northrop Grumman Corp. (NYSE:NOC) .

On the other hand, Raytheon’s stock has returned 24.9% in the last one year, outperforming the 24.2% rally of the industry it belongs to.This might have been driven by its wide range of combat-proven defense products, on account of which the company continues to receive scrumptious orders from both Pentagon as well as foreign allies of the nation.

Zacks Rank

Both Raytheon and Lockheed Martin currently carry 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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