Lockheed Makes Progress In Its International Expansion With Israeli Unit

Lockheed Martin (NYSE:LMT) has established a subsidiary in Israel, seeking to grow its contracts from the Israel Defense Forces (IDF). This subsidiary, called Lockheed Martin Israel Ltd. and registered with the Israel Corporations Authority, will focus on multiple areas including cyber security, cloud and enterprise information technology. Lockheed has said that the unit will hire local talent and build partnerships with local companies to grow its defense business from the Israeli government.

Lockheed has provided defense products to Israel for many decades now. The company has sold its F-16 fighter jet and C-130J military transport airplane to the country in the past. Israel is also a customer for Lockheed’s latest fifth-generation fighter jet, the F-35, which has been opened for sale to a limited number of countries by the U.S.. We figure this formation of a unit in Israel will further boost Lockheed’s growth prospects in the country. At a strategic level, formation of this Israeli unit is part of Lockheed’s focus on growing its international business, as the company is seeking to counter the declining defense spending from the U.S. government. Lockheed is highly dependent on the U.S. government’s defense spending as the company generates more than 80% of its revenues from government contracts, including about 60% from Department of Defense (DoD) contracts. And, DoD’s contract spending has steadily declined from $369 billion in 2011 to $305 billion in 2013, according to data published by the Federal Procurement Data System. ^[1] To temper the impact on its business from this declining U.S. defense spending, Lockheed is focusing on expanding its international business.

Last year, the company formed a new organization, Lockheed Martin International, which has set up regional offices in capitals of major defense spending countries including Canada, Saudi Arabia, UAE, Singapore, Australia, Israel, India, Japan and South Korea. Lockheed made this move to engage directly and spend more time listening to the needs of these major international defense spenders. We figure these steps from Lockheed to forge closer relationships with major international defense spenders including Israel will help grow the company’s international business. Currently, Lockheed aims to generate about 20% of its overall revenue from international sales within the next few years. And, we figure this is achievable as international orders already constitute about 25% of Lockheed’s backlog. Additionally, we figure growing international defense spending especially from the Middle-East and Asia will support growth in Lockheed’s international sales.

We currently have a stock price estimate of $165 for Lockheed, around 7% below its current market price.

See our complete analysis of Lockheed here

Lockheed Faces Tough Competition From Other Players In The International Market

Lockheed faces tough competition from other international military equipment makers such as BAE Systems, Airbus and Finmeccanica in growing its international sales. Some of these international defense equipment manufacturers are not as constrained as Lockheed is by the U.S. government on technology transfer and other aspects, which help win defense contracts. Nonetheless, we figure Lockheed with its advanced and wide product portfolio will be able to grow its international sales benefiting from the rising international military spending.

The products of Lockheed which are currently in high demand from many international governments include missile defense systems, command & control systems and littoral combat ship (LCS). And, we figure in the coming years, these products will play a key role in growing Lockheed’s international sales, which are currently driven by the F-16 fighter jet and C-130J strategic airlift aircraft.

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1. Federal Procurement Data System, September 9 2014, www.fpds.gov [↩]