Lockheed Martin (LMT) Arm Wins $192M Surface Combatant Deal

Lockheed Martin Corporation’s LMT business segment, Rotary and Mission Systems (“RMS”), recently clinched a modification contract under the Foreign Military Sales (“FMS”) program to provide Australia with technical engineering and management services for the Surface Combatant program. The contract was awarded by the Naval Sea Systems Command, Washington, DC.

Valued at $192.4 million, the contract is expected to be complete by September 2025. The majority of the work related to the deal will be carried out in Moorestown, NJ.

What's Favoring Lockheed Martin?

As war threats continue to grow at an alarming rate, nations are focusing on reinforcing their defense structures to deter any warfare-like situation.

Of late, increased defense spending has been witnessed in strengthening the anti-air, anti-submarine and anti-surface warfare defense capabilities. This, in turn, is favoring the prospects of Lockheed Martin's RMS business unit.

To this end, LMT's RMS unit enjoys a lucrative position in manufacturing the combat surface system, which will provide the Navy with enhanced maritime warfare capabilities. It is extensively engaged in designing and manufacturing ships, submarine missions and combat systems.

This, in turn, has resulted in multiple contract wins for the company, including deals under the FMS program. The latest contract win is a bright example of that. Consequently, the steady flow of contact tends to boost Lockheed Martin's revenues from the RMS business segment.

Growth Prospects

Per Research and Markets’ projections, the Naval Vessels and Surface Combatants Market is expected to witness a CAGR of 2.7% from 2020 to 2030. Such projections exemplify immense opportunities for defense majors to reap the multitude of gains from the expanding market size.

Considering the bright growth prospects in Naval Vessels and Surface Combatants space, other prominent defense majors who stand to benefit are General Dynamics GD, BAE Systems BAESY and Huntington Ingalls HII.

General Dynamics’ Marine Systems segment is the leading designer and builder of nuclear-powered submarines and a leader in surface combatant and auxiliary ship design and construction for the U.S. Navy. It has more than 60 years of experience in integrating combat management systems into aircraft, submarines and surface ships.

General Dynamics has a long-term earnings growth rate of 9.8%. GD shares have rallied 19.7% in the past year.

BAE Systems designs and manufactures complex warships and submarines, as well as their combat systems and equipment, to detect, track and destroy threats. Its Global Combat Ship is the most modern and versatile ship in the world that meets Canada's requirements and is capable of deployment worldwide for extended periods, undertaking a wide range of roles — from high intensity conflicts to humanitarian assistance — including anti-submarine warfare and air defense.

BAE Systems’ long-term earnings growth rate is pegged at 8.9%. Shares of BAESY have appreciated 39.7% in the past year.

Huntington Ingalls’ shipbuilding is the largest supplier of U.S. Navy surface combatants. Its Arleigh Burke-class Destroyers, equipped with the Navy's Aegis Combat System, are the most advanced state-of-the-art surface combatants built worldwide.

The Zacks Consensus Estimate for Huntington’s earnings indicates a growth rate of 13.9% from the prior-year period. HII shares have rallied 7.3% in the past year.

Price Movement

In the past year, shares of LMT have rallied 10.2% compared to the industry’s fall of 42%.

Image Source: Zacks Investment Research

Zacks Rank

Lockheed Martin currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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