Yahoo Finance Lockheed (LMT) Clinches Navy Contract to Support LCS Program
Lockheed Martin Corp.’s LMT business segment, Rotary and Mission Systems (RMS), recently clinched a modification contract to provide industrial post-delivery availability support for the Freedom-variant Littoral Combat Ship USS Cleveland (LCS 31). The award has been offered by the Naval Sea Systems Command, Washington, D.C.
Valued at $22.7 million, the contract is expected to be completed by March 2025. Work related to this deal will be executed in Marinette, WI.
What’s Favoring Lockheed?
LCS is a class of small surface combatant ships, which play a critical role in defending a nation. These ships offer agile, mission-focused platforms and are capable of operating in near-shore and open-ocean environments. Currently, there are two variants of LCS in the United States. The Freedom variant is being constructed by Lockheed, which remains one of the prominent defense contractors providing combat-proven naval solutions.
Impressively, the Freedom-variant LCS is a resilient, flexible warship, with more than a third of its hull being open and equipped to take on new capabilities, including advanced sensors, missiles and cutting-edge cyber systems.
Such remarkable features of this variant of LCS must have been boosting its demand significantly. This can be gauged from the fact that Lockheed is in full-rate production mode for the Freedom-variant LCS and has delivered 13 ships to the U.S. Navy, with three more in various stages of production as of April 2023.
What’s the Potential for Growth?
Nations across the globe are fortifying their defense spending on military weapons and arsenals as they look to strengthen their defense capabilities amid the widespread hostilities witnessed worldwide. This also includes augmented spending on navy combat vehicles, including LCS, for enhanced sea warfare capabilities.
In this regard, according to a report by the Morder Intelligence firm, the global naval combat vessels market is projected to witness a CAGR of 6.5% during the 2024-2029 period.
This obviously bolsters growth prospects for Lockheed, considering its ability to deliver versatile and cutting-edge naval solutions. Notably, apart from LCS, Lockheed’s RMS unit designs Multi-Mission Surface Combatant (MMSC), which is a lethal and highly maneuverable warship capable of littoral and open ocean operation. It has a range of 5,000 nautical miles and can reach a speed of more than 30 knots, with the ability to confront modern maritime and economic security threats.
Given the expertise Lockheed has in providing agile maritime securities, we may expect the company to win more contracts involving its naval solutions like the latest one, in coming days. Such contract wins should bolster the top-line performance of its RMS unit, which contributes nearly 24% to the company’s total revenues.
Opportunities for Peers
Considering the solid growth opportunities offered by the global naval combat vessels market, other defense primes like Huntington Ingalls Industries HII, Northrop Grumman NOC and General Dynamics GD, with a strong presence in this market, should benefit as well.
Huntington Ingalls’ Shipbuilding and Newport News Shipbuilding segments design and construct non-nuclear ships, including amphibious assault ships, expeditionary warfare ships, surface combatants and national security cutters. During 2023, 81% of the company’s revenues were generated from the U.S. Navy.
HII boasts a long-term (three-to-five-years) earnings growth rate of 7.2%. The Zacks Consensus Estimate for 2024 sales implies growth of 2% from the prior-year figure.
Northrop Grumman delivers components like Airborne LASER Mine Detection System, Surface Electronic Warfare Improvement Program Block III, Fire Scout and bridge and navigation systems for both the Freedom and Independence variants of LCS. During 2023, 15% of NOC’s sales came from the Navy.
NOC boasts a long-term earnings growth rate of 8.7%. The Zacks Consensus Estimate for 2024 sales implies growth of 4.6% from the prior-year figure.
General Dynamics is the lead integrator for the Independence-variant LCS. It is responsible for the design, integration and testing of the navigation, command, control, computing and aviation systems on each ship. In 2023, its Marins Systems business segment generated 23% of its total revenues.
GD boasts a long-term earnings growth rate of 12%. The Zacks Consensus Estimate for 2024 sales implies growth of 10.5% from the prior-year reported figure.
Price Performance
In the past year, shares of LMT have rallied 4.2% against the industry’s 7% decline.
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Zacks Rank
Lockheed currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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