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Lockheed Martin Wins $524M Deal for PAC-3 Missile Program

Zacks

Lockheed Martin Corp. LMT recently secured a $524-million modification contract for Patriot Advanced Capability-3 (PAC-3) missiles, under the domestic and foreign military sales program. Per the deal, the company will delivery PAC-3 enhancement missiles, reduction initiative missiles and associate ground support equipment to the United States, Qatar, Saudi Arabia and Romania.

Details of the Deal

The contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, Alabama. Operations related to the deal will be carried out in Grand Prairie and Lufkin, TX; Camden, AZ; Chelmsford, MA; Ocala, FL and Huntsville, AL.

Lockheed Martin will utilize fiscal 2016, 2017 and 2018 other procurement (Army) funds to complete the task. Work related to the deal is scheduled to be completed by Jan 31, 2021.

A Brief Note on PAC-3 Missiles

The PAC-3 missile system is a long range, air-defense and medium to high-altitude guided missile system. It is designed to counter tactical ballistic missiles, cruise missiles and advanced aircraft. The system’s radar set provides tactical functions of airspace surveillance, target detection, identification, classification, tracking, missile guidance and engagement support.

Per Lockheed Martin, the PAC-3 Missile Segment Enhancement (PAC-3 MSE) interceptor has a two-pulse solid rocket motor that boosts altitude and range. The company anticipates that demand for this advanced missile system to be high, particularly in politically tense regions of the Middle East.

Recent Developments

Lockheed Martin’s PAC-3 team achieved several notable milestones in the fourth quarter of 2017. The company was successful in neutralizing four tactical ballistic missile targets that eventually led to the initiation of full-rate production for PAC-3 MSE interceptors.

Moreover, Lockheed Martin signed major agreements with the U.S. and Romanian officials. The company won PAC-3 MSE missile orders from the Romanian Army to upgrade its air defense system. Lockheed Martin also received orders worth $900 million for PAC-3 missile production for the United States and allied military forces.

Needless to say, such inflow of orders will fuel the top line of Lockheed Martin. Evidently, the company’s Missiles and Fire Control segment, which produces the PAC-3 defense missiles and interceptors, recorded fourth-quarter 2017 net sales of $2.3 billion, reflecting a solid 31% improvement from the year-ago quarter.

In December 2017, the U.S. government passed a Continuing Resolution Bill which included an additional $4.7 billion over the prior bill for emergency defense funding. Out of the $4.7 billion, nearly $4 billion was allocated for missile defense needs which also included request for Lockheed Martin’s 50 additional THAAD interceptors and nearly 150 PAC-3 MSE missiles. With widespread geo-political uncertainty still looming across the globe, such funding provisions is likely to keep the company on a growth trajectory.

Price Performance

Shares of Lockheed Martin have rallied about 34.5% in a year, compared with the broader industry’s 46.4% growth. The underperformance was caused by intense competition in the domestic and international markets.




Zacks Rank & Other Key Picks

Lockheed Martin sports a Zacks Rank #1 (Strong Buy).

A few other top-ranked stocks in the same sector are The Boeing Company BA, Huntington Ingalls Industries HII and Spirit Aerosystems Holdings SPR, each of them flaunting a Zacks Rank #1. You can see the
complete list of today’s Zacks #1 Rank stocks here
.

Boeing delivered an average positive earnings surprise of 20.69% in the past four quarters. The Zacks Consensus Estimate for first-quarter 2018 earnings rose by 24 cents over the last 60 days.

Huntington Ingalls posted an average positive earnings surprise of 14.22% over the last four quarters. The Zacks Consensus Estimate for first-quarter 2018 earnings has risen by 4 cents in the past 60 days.

Spirit Aerosystems reported an average positive earnings surprise of 9.76% for the last four quarters. The Zacks Consensus Estimate for first-quarter 2018 earnings rose by 8 cents in the past 60 days.

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