On Jul 8, 2014, Zacks Investment Research upgraded the largest
U.S. defense operator
Lockheed Martin Corp.
) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Lockheed Martin has been witnessing continuous order flows from the
Pentagon's funding list defying the so called "sequestration". The
company has received a series of contracts from the U.S. Department
of Defense (DoD), ranging from big to small tickets. These defense
deals are a testimony to the wide range of products at the disposal
of Lockheed Martin.
In June this year, the defense giant clinched a $1.9 billion
contract from the U.S. Air Force to complete production of the
fifth and sixth Geosynchronous Earth Orbit (GEO) satellites. The
satellites - GEO-5 and GEO-6 - come under the military's Space
Based Infrared System (SBIRS) program of which Lockheed is the
prime contractor. The tasks related to the contract will be carried
out in Sunnyvale, CA and will run through Sep 30, 2022.
Given the vital role played by satellites in the military space,
Lockheed Martin is looking to bolster its satellite product
coverage by increasingly investing in R&D and acquisitions.
Last month, a $452.0 million contract was awarded to Lockheed
Martin Space Systems Co. Per the contract, the company will provide
reentry system/reentry vehicles (RS/RV) subsystem support as well
as procure MMIII RS/RV subsystem and related support equipment.
Lockheed has also inked a deal to buy Zeta Associates, Inc. The
acquisition is anticipated to be completed in the third quarter of
2014. Following the completion of the acquisition, Zeta Associates
will merge with Lockheed Martin's Space Systems division. In May
2014, Lockheed purchased Astrotech Space Operations, a company
specializing in prelaunch processing of satellites.
This well-known defense behemoth delivered positive earnings
surprises in the last 4 quarters with an average beat of 20.23%.
Encouraging first-quarter 2014 numbers led management to raise its
operating profit, earnings per share and cash from operations
forecast for 2014. The international mix is also expected to rise
to 20% of total sales in 2014.
Management also returns a substantial portion of its free cash flow
to shareholders through share repurchases and incremental
dividends. First quarter 2014 free cash flow was a record $2.0
billion of which 78% or $1.6 billion was returned to shareholders.
We believe these strong fundamentals have led to the rank upgrade.
Other Stocks to Consider
Besides Lockheed Martin, other companies in the in the
aerospace/defense sector that are worth considering include
General Dynamics Corp.
Northrop Grumman Corporation
). These stocks carry a Zacks Rank #2 (Buy).
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