Lockheed Martin Corporation
) has been awarded three new contracts to support the supply chain
needs of the Republic of Korea Air Force and Navy. Under the terms
of the basic ordering agreements, Lockheed Martin will provide
spare material and repair of military hardware for the Republic of
Korea's fleet of F-16s and P-3 military aircrafts. The company has
also provided these same services for the C-130 for nearly 13
years. These annual contracts have a $2 million ceiling and are
Lockheed Martin provides supply chain support for U.S. and
international governments as well as commercial customers at
operational field sites. The company has the capability to meet
rush deliveries through its global network, providing value to
customers by reducing emergency maintenance cycles.
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.
A few days back, Lockheed Martin had made an announcement to
increase the 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, 2012.
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 $75.5 billion at the end of the
first half of 2012.
The company is expected to release its third-quarter 2012 results
on October 24, 2012. The Zacks Consensus Estimates for
third-quarter 2012 and fiscal 2012 are currently pegged at $1.85
per share and $8.10 per share, respectively.
We currently maintain our long-term Outperform recommendation on
Lockheed Martin based on revenue growth, improved earnings
guidance, incremental dividend payout and stable order backlog.
Going forward, we believe the current discounted valuation of the
defense behemoth versus its peers like
The Boeing Company
Huntington Ingalls Industries Inc.
) is unwarranted given its leveraged presence in the Army, Air
Force, Navy and IT programs.
Also, shareholder return will continue to be shored up by the
company's focus on debt repayment, its ongoing share repurchase
program and the incremental dividend. In the near term however
Lockheed Martin carries a Zacks #3 Rank implying a short-term Hold
rating for the next 1-3 months.
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