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Lockheed Martin Hits 52-Week High on Rising Global Unrest

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On Nov 20, 2015, shares of Lockheed Martin Corp.LMT soared to a new 52-week high of $226.98. The stock pulled back a bit to end the trading session on Friday at $226.06. This defense prime with a market cap of around $69.47 billion has seen its shares rise roughly 17.39% so far this year as against a 1.47% increase for the S&P 500 over the same period.

What's Driving Lockheed Martin Up?

Lockheed Martin has recently concluded its acquisition of Black Hawk helicopter maker Sikorsky Aircraft from United Technologies UTX for $9 billion in cash. The deal would bolster Lockheed's position as the world's largest defense contractor, pushing it deeper into the military helicopter business. This is especially true, as the purchase of Sikorsky would add another well-known product - Black Hawk - to Lockheed Martin's helicopter business besides a number of hugely popular military aircraft, notably the F-35 fighter jet, already under its belt. Sikorsky generates approximately 75% of revenues from military customers and the balance 25% from commercial users.

The takeover of Sikorsky is expected to be a strategic fit for Lockheed Martin. The move could prove to be a revenue booster for the prime defense contactor whose top line is under pressure from a shrinking defense budget.

It is quite evident from the company's strategy that it is seeking to boost its weapons development operations while moving away from the commoditized services market. This July, the company revealed plans to carry out a strategic review of its government information technology and technical services businesses. This might involve either a sale or a spin-off.

Moreover, a politically unstable planet despite tottering economies has led to various nations stepping up their defense capabilities. The direct beneficiary of a volatile geo-economy is undoubtedly the aerospace and defense players. Lockheed Martin with its leading position is expected to get a boost from rising international weapons sales.

The company recently reported stellar third quarter results with better-than-expected earnings along with higher revenues, solid margins, and strong cash flows, buoyed by robust sales of its F-35 Joint Strike Fighter, the most expensive weapons program of the Pentagon. Lockheed lifted its 2015 guidance for sales, operating profit, and EPS on the basis of impressive third quarter results.

Given the tepid budget picture at home, which is adversely impacting its backlog, the company has stepped up its international foray. Lockheed Martin generated 20% of total sales from international customers in 2014, including foreign military sales. The growing international mix is expected to rise further and the company reiterated its plan to increase that to 25% of total sales in the upcoming years.

A key catalyst for the company is the F-35 program. The F-35 program identifies over 700 aircraft to be acquired by 11 international countries and nearly 50% of the projected annual orders over the next 5 years are likely to be placed by international customers. Now, with the Sikorsky acquisition, Lockheed Martin's overseas revenues will definitely get a boost as approximately 50% of Sikorsky annual revenues are derived from international customers.

Lockheed Martin continues to be a strong cash generator helping it to take important cash deployment decisions. In the third quarter, it achieved over $1.5 billion in cash from operations compared with $990 million a year ago. The company expects 2015 cash flow from operations of at least $5 billion with no contributions to its pension plans.

Zacks Rank

Lockheed Martin currently has a Zacks Rank #3 (Hold). A couple of companies in the defense space worth considering are General Dynamics Corp. GD and The Boeing Co. BA , both carrying a Zacks Rank #2 (Buy).

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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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