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Lockheed Martin (LMT) Wins Two Major Contracts worth $294M

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Defense giant Lockheed Martin Corp’s LMT Rotary and Mission Systems business unit has won a U.S. Navy contract for the procurement of the DDG 116-118 Aegis follow-on support services. Valued at $157.4 million, this contract represents the completion of the development and fielding of the Aegis Baseline 9 Aegis Weapon System and Integrated Aegis Combat System on the remaining Aegis Technical Insertion 12 (TI 12)-configured destroyers as well as the TI 12 and TI 08-configured cruisers.

The contract, awarded by the Naval Sea Systems Command, Washington, DC, includes options which if exercised, would bring its cumulative value to $426 million. It will utilize fiscal 2016 operations, maintenance, research and development test and evaluation funds; fiscal 2015 and 2016 other procurement funds; and fiscal 2013 shipbuilding and conversion funds.

The majority of the work will be executed in Moorestown, NJ, while the rest will be carried out in Johnstown, PA and various other locations across the U.S. Work is scheduled to be complete by Sep 2017.

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Aegis Baseline 9 Weapon System

The AEGIS Weapon System (AWS) is a centralized, automated, command-and-control (C2) and weapons control system incorporated in the U.S. Naval fleet. Designed by Lockheed, the AWS can simultaneously attack land targets, submarines and surface ships, while protecting the fleet against aircraft, cruise missiles and ballistic threats.

Baseline 9 is the latest version of the AWS. It offers the Navy surface fleet the most advanced air defense capability. The latest configuration incorporates the latest generation of ballistic missile defense programming, which can shoot down ballistic missiles in both the exo-atmosphere (upper atmosphere) and endo-atmosphere (lower atmosphere).

Other Notable Contracts Won by Lockheed

Lockheed Martin’s Aeronautics business division has recently nabbed a modification contract, worth $136.6 million, for the low-rate initial production of Lot 10 air vehicle initial spares, including F-35 common spares; F-35A, F-35B and F-35C unique spares; and aloft spares packages/deployment spares packages. These spares will be delivered to the U.S. Air Force, Navy and Marine Corps, as well as non-Department of Defense (DoD) customers and through Foreign Military Sales.

The contract, which was awarded by the Naval Air Systems Command, Patuxent River, MD, will primarily utilize fiscal 2016 aircraft procurement funds. Work is scheduled to be complete by Dec 2019, the majority of which will be carried out in Fort Worth, TX, while the remaining work will be performed in other locations across the U.S. as well as different parts of Europe.

Apart from the aforementioned contracts, both of which exceed $100 million apiece, the defense prime also won a handful of comparatively lower-valued contracts from the Pentagon on Friday. These include a modification contract worth $45 million for contractor logistics support (CLS), legacy sustainment, and combined task force support; a contract worth $37.3 million for providing next-generation technical services to the U.S. Army; and another modification contract worth $26.5 million for the low-rate initial production of Lot 9 air vehicle initial spares for F-35B aloft spares packages to support the Marine Corps.

Our View

Currently 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. In its second-quarter 2016 earnings release, the company raised its sales outlook by $400 million for 2016, of which the Aeronautics division is expected to contribute $350 million. Management has also raised the 2016 profit outlook by $125 million.

We believe the raised guidance reflects expectations of winning a handsome number of contracts from the U.S. DoD through the rest of 2016, which will drive business expansion. Thus, we are positive on the aforementioned contracts, which have a cumulative value of more than $400 million.

Stocks to Consider

Lockheed Martin currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the aerospace and defense sector include Engility Holdings, Inc. EGL, General Dynamics Corporation GD and Ducommun Inc. DCO. While Engility and Ducommun sport a Zacks Rank #1 (Strong Buy), General Dynamics carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

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