Lockheed Martin Corporation
) was competitively awarded by the U.S. Army a $114 million,
five-year contract to upgrade combat vehicle simulators for
soldier training, and also to expand the training capability for
the Marine Corps.
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Per the contract, Lockheed Martin will develop and install 13
upgrades for close combat tactical training systems at 19 Army
installations. The new technologies will add integrated displays
and replicate tactical vehicle capabilities identical to those
now entering the field. The enhancements will be fielded from
In addition to the upgrades for the Army, the company will also
deliver new training systems to the Marine Corps at Camp Lejeune,
North Carolina, providing commonality across services.
Engineering work for this training system will be performed in
Based in Bethesda, Maryland, Lockheed Martin is a global security
and aerospace company, engaged in the research, design,
development, manufacture, integration and sustainment of advanced
technology systems, products and services. Key growth drivers of
the company are its focus on debt repayment, its ongoing share
repurchase program and the incremental dividend. Some of Lockheed
Martin's main competitors are
The Boeing Company
General Dynamics Corporation
Lockheed Martin recently reported strong third quarterly numbers
of $2.26 per share, beating the Zacks Consensus Estimate of
$1.85. This was also higher than the year-ago quarterly earnings
On the revenue front, Lockheed Martin reported quarterly revenue
of $11.9 billion, beating the Zacks Consensus Estimate of $11.1
billion. However, the figure fell below the year-ago quarterly
revenue of $12.1 billion.
During the third quarter, the company repurchased 3.3 million
shares at a cost of $294 million. In September this year, the
company increased its quarterly dividend rate to $1.15 per share,
up approximately by 15 cents from the current payout of
approximately $1.00 per share. The proposed hike would bring the
annual dividend to $4.60, up 15% from the previous payout. The
increased quarterly dividend will be paid on December 28, 2012 to
shareholders of record at the close of business on December 3,
The U.S. defense budget for 2012 was $645.7 billion, with the
base budget at $530.6 billion and $115.1 billion approved for
Overseas Contingency Operations ("OCO") as supplementary defense
spending, mainly to fund ongoing wars. In February this year, the
Department of Defense ("DoD") requested a Pentagon base budget of
$525.4 billion for 2013, which is approximately $5.1 billion or
1% less than what is approved for fiscal 2012, with $88.5 billion
earmarked for OCO spending.
In early August 2012, the subcommittee recommended $511 billion
for DoD's base budget and $93 billion for OCO spending, for a
total of $604.5 billion for fiscal 2013.
Going forward, we believe Lockheed Martin has significant upside
potential based on the Obama administration's focus on
Intelligence Surveillance Reconnaissance (ISR), unmanned systems,
force protection, cybersecurity, and missile defense. It already
sits on an order backlog of approximately $75.6 billion at the
end of the first nine months of 2012.
Further, we expect shareholder return to continue to be shored up
by the company's focus on debt repayment, its ongoing share
repurchase program and the incremental dividend.
However, we are concerned about the budget deficits and political
uncertainty that make future defense budgets vulnerable to
cutbacks. Lockheed Martin presently retains a short-term Zacks #3
Rank (Hold) that corresponds with our long-term Neutral
recommendation on the stock.