Lockheed Gets $13M Navy Contract - Analyst Blog
11 Janvier 2013 - 3:20PM
Zacks
Lockheed Martin
Corporation (LMT) was awarded a $13.3 million contract for
fiscal 2012 Acoustic Rapid Commercial-Off-The-Shelf Insertion
(A-RCI) TI-12 system upgrades. The U.S. Naval Sea Systems
Command, Washington, D.C., is the contracting authority.
The contract provides funding for
the development and production of the A-RCI and common acoustics
processing for the U.S. submarine fleet. Work on the contract will
be performed in Manassas, Virginia (60%), and Clearwater, Florida
(40%). Lockheed expects to finish work on the contract by January
2014.
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. We expect the company to
benefit from a strong defense focus on a number of its platform
programs, such as the C-130 Hercules & C-5 Galaxy transport
aircraft, F-16 Fighting Falcon multi-role jet, MH-60 Helicopters,
the Advanced Extremely High Frequency & the Global Positioning
Satellite III system satellites, the Littoral Combat Ship, and the
Aegis Weapons System.
Going forward, we believe Lockheed
Martin has significant upside potential based on the Obama
administration’s focus on Intelligence Surveillance Reconnaissance
(ISR), unmanned systems, force protection, cyber-security and
missile defense. It was already sitting on an order backlog of
approximately $75.6 billion at the end of the first nine months of
2012.
Lockheed Martin has one of the
strongest balance sheets among its peers with a stable long-term
debt-to-capitalization of 78.0% after the end of the first nine
months of 2012. Lockheed continues to be a strong cash generator
with its operating cash flow reaching approximately $4.3 billion
during fiscal 2011. Management is also prudent of returning a
substantial portion of its free cash flow to shareholders through
share repurchases and incremental dividends. The company closed the
first nine months of 2012 with cash and cash equivalents of $4.7
billion, and a $1.5 billion revolving credit facility expiring in
August 2016. Total long-term debt of approximately $6.4 billion was
mainly in the form of fixed interest bearing securities (notes and
debentures).
On the flip side, we must remember
that a large percentage of Lockheed Martin’s business comes from
the U.S. government (82% of sales in 2011). Budget deficits and
political uncertainty make future defense budgets vulnerable to
cutbacks. Going forward, Pentagon is seeking to trim about $487
billion in defense spending over 10 years to meet deficit reduction
targets. Also, U.S. economic fundamentals are basically being kept
on a tight leash as the Euro-crisis continues to cast its spell
over financial markets, risking further cutbacks in future defense
budgets.
We are apprehensive about the $15
trillion national debt and an unemployment rate of around 7.7% that
would lead to the Budget Control Act’s dictum of automatic cutbacks
across the board going forward. This would not result in anything
extra for defense goliaths in general and Lockheed Martin in
particular.
Given the budgetary cuts and
overall scenario, it would not be too pessimistic to advise
investors to adopt a wait-n-watch approach for the defense and
aerospace major. Thus, considering the company’s business model and
fundamentals, we maintain our long-term “Neutral” recommendation on
the stock. The company holds a Zacks Rank #3 (Hold) rating, which
translates into a short-term Hold rating, and correlates with our
long-term recommendation. This is in sync with its peers like
The Boeing Company (BA) and Northrop
Grumman Corporation (NOC).
Over the longer run, we expect the
company to register a stable performance given its diversified
presence in a plethora of defense platforms and IT know-how. Also,
shareholder return will continue to be shored up by the company’s
focus on debt repayment, its ongoing share repurchase program and
the incremental dividend.
BOEING CO (BA): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
NORTHROP GRUMMN (NOC): Free Stock Analysis Report
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