We are upgrading our recommendation on Lockheed Martin Corp. to
Outperform from Neutral. Considering that the U.S. military budget
is increasingly under pressure, Lockheed Martin's
better-than-expected second quarter results are commendable, and
more so is its raising of the full-year guidance. Also, the company
continued to generate strong cash from operations while maintaining
its cash deployment strategy. Lockheed also got a boost from its
recent decision to freeze its defined benefit pension plan, which
will aid earnings over the long term. The healthy dividend yield
and stable cash flow will likely keep the stock defensive in spite
of the budget uncertainties. Lockheed Martin boosted its
bottom-line forecast for 2014.
Lockheed Martin Corporation is the largest defense contractor in
the world. The company's customer base includes the U.S.
government, foreign governments, and other commercial buyers.
The company operates through the following five businesses:
Aeronautics, Information Systems & Global Solutions, Missiles
and Fire Control (MFC), Mission Systems and Training (MST), and
Aeronautics, which is engaged in the design, research and
development, systems integration, production and support of
advanced military aircraft and related technologies. The segment
operates in three lines of business: Combat Aircraft, Air Mobility
and Other Aeronautics Programs.
This segment remains busy with major programs comprising F-35
Lightning II Joint Strike Fighter C-130 Hercules F-16 Fighting
Falcon F-22 Raptor and C-5M Super Galaxy.
Information Systems & Global Services provides management,
engineering and logistical services, and provides solutions for the
command, control, communications, computers, intelligence,
reconnaissance, and surveillance (C4ISR) activities of the U.S.
Department of Defense (DoD), intelligence agencies, other federal
agencies and allied countries. IS&GS has three principal lines
of business: Civil, Defense and Intelligence.
In the MFC business, headquartered in Dallas, some of its
high-profile programs include the Terminal High Altitude Area
Defense System, Joint Light Tactical Vehicle, PAC-3 Missiles, as
well as logistics and other technical services from GTL.
In the MST business, headquartered in Washington, DC, some of
its high-profile programs include the Aegis Combat System, Littoral
Combat Ship, MH-60 helicopter avionics, as well as military and
Space Systems is engaged in the design, development,
engineering, and production of commercial and military space
systems. Space Systems has three lines of business: Satellites,
Strategic & Defensive Missile Systems, and Space Transportation
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