Lockheed Bags 2 Large Contracts; Still Worth $98 Despite Looming Defense Cuts
As defense companies like Lockheed Martin (NYSE:LMT) and Boeing (NYSE:BA) face potential defense cuts in future, Lockheed managed to bag 2 large and crucial contracts. The company stands to gain both in products and services through the contracts, which include supporting Antarctic expeditions for the National Science Foundation, [1] as well as a deal to provide the THAAD (Terminal High Altitude Area Defense) missile system overseas for the first time. [2]
These latest moves could help assuage investor concerns over the defense spending overhang created by the U.S. debt crisis and increase politicization of government spending.
See our full analysis for Lockheed Martin
Lockheed May Push More for Overseas Sales
As Washington mulls over defense cuts, Lockheed Martin has seen some worrying times since the U.S. debt crisis as the the company predicted a flat revenue outlook for 2012. [3] As a result, it seems that the company’s strategy is to increasingly push for Foreign Military Sales (FMS) contracts, utilizing weapon demand outside of U.S. and Europe. The $3.49 billion THAAD deal with UAE corroborates this, and could be pointing out to strong trend over overseas sales.
As far as U.S. trends are concerned, it is likely that Lockheed may be facing a dearth of contracts that are strictly “defense” in nature, such as military aircraft or weapons. The focus would hence shift to services and could provide an upside to the company’s Information Systems division. Like the $2 billion Antarctic support contract, the company could prioritize research-based projects over military ones, especially as public sentiment veers towards decreased military spending.
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We currently have a price estimate of $98 for Lockheed Martin, which is roughly 20% above the current market price.
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