Lockheed (LMT) Wins $481M Deal for Combat Ship Construction

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Lockheed Martin Corp.LMT recently secured a foreign military sales ("FMS") contract worth $481.2 million to support the construction of four Multi-Mission Surface Combatant ("MMSC") ships. Work related to this deal is expected to be over by October 2024.

The contract was awarded by the Naval Sea Systems Command, Washington, DC. Majority of the work will be carried out in Walpole, MA; Washington, D.C., Moorestown, NJ, Germany and a few other locations. The agreement will cater to the kingdom of Saudi Arabia.

A Brief Note on MMSC

Lockheed Martin's MMSC is a derivative of the US Navy's Freedom-class Littoral Combat Ship ("LCS"). It is a lethal and highly-maneuverable surface combatant that performs littoral and open-ocean operations.

With proven combat management system lineage, Lockheed Martin's MMSC has the interoperability necessary for today's joint and allied naval force maneuvers. Paired with world's most advanced maritime helicopter, MH-60R SEAHAWK, the MMSC has a robust anti-submarine mission capability that is fully interoperable with the U.S. Navy and its coalition partners.

Our View

Apart from being Pentagon's prime contractor, Lockheed Martin is also the chief contractor of the U.S. Navy's latest LCS. With President Trump in favor of spending heavily in the nation's defense arena, his reign is considered to be a golden era for aerospace-defense players like Lockheed Martin.

This gets very well reflected in the fiscal 2019 (FY2019) defense budget that was released last month. For the Naval section, the FY 2019 budget provisions for procurement of one LCS for $1.3 billion. This in turn will boost Lockheed Martin's Rotary and Mission Systems (RMS) segment that designs, manufactures, serves and supports a variety of defense products like the LCS.

During fourth-quarter 2017, RMS segment registered 14% top-line growth. We may expect this business unit to show similar upward sales trend in the first quarter and beyond, buoyed by the latest contract that the company won along with the recent budgetary amendments.

Price Movement

Lockheed Martin's stock moved up about 27.3% in a year, compared with the broader industry 's gain of 48.1%. This underperformance may have been caused by intense competition that the company faces for its broad portfolio of products and services in the domestic and international markets.

Zacks Rank & Other Stocks to Consider

Lockheed Martin carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks from the same space are Boeing BA , Huntington Ingalls Industries HII and General Dynamics GD . While Boeing and Huntington Ingalls sport a Zacks Rank #1 (Strong Buy), General Dynamics carries a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Boeing posted an average positive earnings surprise of 20.69% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings moved up 76 cents over the past 30 days.

Huntington Ingalls recorded an average positive earnings surprise of 3.85% in the past four quarters. The Zacks Consensus Estimate for 2018 earnings rose by $4.03 over the last 30 days.

General Dynamics has an average positive earnings surprise of 4.02% for the past four quarters. The Zacks Consensus Estimate for 2018 earnings has risen 55 cents in the last 60 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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