Lockheed in Littoral Combat Deal - Analyst Blog


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Lockheed Martin Corporation ( LMT ) has received a $715 million contract for the construction of the third and fourth Littoral Combat Ships ("LCS") under a previous 10-ship contract received by the company in December 2010. Per the contract modification, the company will construct two LCS, Little Rock (LCS 9) and Sioux City (LCS 11).

The company has teamed up with Marinette Marine Corporation, a Fincantieri company, in building these ships. Currently, the company is in the process of constructing the first and second ships, Milwaukee (LCS 5) and Detroit (LCS 7), awarded under this contract. In December 2010, the company had received a fixed-price-incentive-fee contract to construct up to 10 LCS. The total value of the contract was $3.6 billion if all the options are exercised.

This is not the first LCS contract for Lockheed. The company had earlier designed and constructed the nation's first LCS, USS Freedom (LCS1). After completing its first deployment in 2010, LCS1 is presently preparing for its second venture. Another LCS, under that prior contract, Fort Worth (LCS 3) is expected to be delivered in September 2012.

A littoral combat ship is a type of relatively small surface vessel intended for operations in the littoral zone. They are well designed to tackle rapidly changing global threats and provide a cost-effective solution in the current era of tight budgets.

Lockheed Martin is a global security and aerospace company and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.Over the longer run, we expect the company to register a stable performance driven by 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.

We currently remain on the sidelines due to the impact of the Euro-crisis on U.S. economic fundamentals. This keeps the risk high for further cutbacks in defense budgets. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

The company mainly competes with Northrop Grumman Corporation ( NOC ) and The Boeing Company ( BA ).

BOEING CO ( BA ): Free Stock Analysis Report
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