The U.S. Department of Defense (DoD) dispersed 12 new
contracts worth $521.1 million on Sep 5, 2013. The Javelin Joint
Lockheed Martin Corp.
) became one of the awardees and received a $67.7 million
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Per the contract, the company will supply 260 Javelin rounds for
the U.S Marine Corps as well as for the militaries of Jordan,
Indonesia and Oman for a purchase price of $0.26 million per
missile round. The contract also calls for the unit to provide
command launch unit retrofits for the missile's launchers.
This was the second partial-foreign military sales contract
received by the joint venture in the past four months. In May
this year, the joint venture had received a fixed-price partial
foreign military sales contract worth $53.4 million for the
supply of Javelin Block I Tactical Missile Rounds for the Army,
Marine Corps, Jordan and Indonesia. The current contract is
approximately 27% bigger than the previous contract.
The FGM-148 Javelin is a man-portable fire-and-forget anti-tank
missile. This enables the user to maneuver after firing to evade
a counter strike. The missile is ejected from the launcher so
that it reaches a safe distance from the operator before the main
rocket motors ignite.
Despite the threat of sequestration, the DoD has continued to
award contracts to defense players. On Aug 27, 2013, the DoD
offered contracts worth $7.59 billion. Among the contenders was
Raytheon which clinched a $15.0 million modification contract for
Cooperative Engagement Capabilities ("CEC") production to the
U.S. Navy. The contract is set to run through Oct 2014. Defense
General Dynamics Corp.
) and Lockheed Martin were the other key contract gainers.
Given the declining trend in the U.S. defense spending, Raytheon
is one of the best-positioned companies among the large-cap
defense players due to its non-platform-centric focus. The
president's defense budget for FY14 would maintain or augment
funding for most of Raytheon's biggest programs, which include
the Standard Missile-3 (SM-3) missile interceptor, the Advanced
Medium-Range Air to Air Missile and the SM-2 and SM-6 ship
defense missiles. Other programs include AIM-9X Sidewinder,
Evolved SeaSparrow, Javelin anti-tank missile, Joint Standoff
Weapon, Rolling Airframe Missile, Small Diameter Bomb II and
Lockheed Martin is the largest U.S. defense contractor with a
platform-centric focus that guarantees a steady inflow of
follow-on orders from a leveraged presence in the Army, Air
Force, Navy and IT programs. Going forward, we believe Lockheed
Martin has significant upside potential based on the Obama
administration's focus on Intelligence Surveillance
Reconnaissance, unmanned systems, force protection, cyber
security, and missile defense.
The U.S. aerospace and defense stocks have lately been hit by
fears of automatic budget cuts resulting from sequestration. Now
that President Obama is increasingly gaining support for a
military strike against Syria from both Republican and Democratic
leaders, heady days may finally be back for defense stocks. Both
the companies presently retain a short-term Zacks Rank #2 (Buy).
Another defense stock that can be taken into consideration is
Northrop Grumman Corp.
) with a Zacks Rank #2 (Buy).