Lockheed Martin (NYSE:LMT) has been awarded a contract worth up to $4.6 billion from Defense Information Systems Agency (DISA) to manage Department of Defense’s (DoD) global data network.^[1] The global data network is critical in providing high speed and efficient information exchange between US war-fighters and its allies, and directly affects the war-fighters’ probability of success.

The contract, Global Systems Management-Operations (GSM-O) requires Lockheed Martin to provide programmatic, operational and engineering services, and equipment to upgrade the global data network. It is the largest of the three DISA Global Systems Management contracts and can run for a total of seven years including, three years’ fixed service and two two−year optional service extensions. The contract includes AT&T, ACS, Serco, BAE Systems, ManTech and certain other specialized businesses as partners of Lockheed Martin in implementing the project.

The contract will become part of Information Systems division, which constitutes nearly 20% of the currently estimated Trefis stock price for Lockheed Martin.

We currently have a Trefis price estimate of $86 for Lockheed Martin, approximately 1% above its current stock market price.

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Services occupying an increasing portion of Lockheed Martin’s revenues

Over the past few years, revenues from service contracts or services have been growing more quickly than revenues from its product portfolio. This contract will help add to this momentum.

This phenomena is a direct result of a change in the spending pattern of DoD. From 2008 to 2010, spending on products by DoD decreased by 15.3% while spending on services increased by 7.3%.^[2] And, in the absence of a major military initiative, we anticipate services to continue to grow at a higher rate than products. Overall, for Lockheed Martin services have increased their revenue share from 17.6% in 2008 to 20.4% in 2010.

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