What Lies Ahead For Lockheed Martin?

Lockheed Martin (NYSE: LMT) has been upto a lot of things in recent quarters. The company has carried out major restructuring over the last year, with the acquisition of Sikorsky and the sale of its Information Systems and Global Solutions (IS&GS) business to Leidos. The management has stressed its intention to streamline operations and focus on what they do best. Going forward, we expect Lockheed Martin to deliver strong revenue figures. Here’s why:

• In the recent past, customer support and demand for the F-35 has increased tremendously. Key milestones included the rollout of the first F-35 aircraft for the Japan Air Self-Defense Force. At present, the company is on track to provide Japan with 42 aircraft for its national defense requirements. Furthermore, Norway has stated its interest to participate in a multiyear, multinational block buy of the F-35. In its 2017 budget, the country has outlined a request to buy 12 F-35 fighters and remains on track to purchase a total of 52 aircraft for its national defense needs. In addition, the F-35 program is expected to see a massive boost in cash under the Trump Presidency. At present the Pentagon has expressed its need for 1,763 air combat fighters. This number could easily hit the 2,000 mark given Trump’s statements on increasing the overall size of the airforce.

• Over the past two years, Lockheed Martin has worked to try and improve its sales from international customers. The company had previously aimed to expand its focus and footprint overseas in an attempt to achieve 25% of annual sales from international customers. Due to a change in its portfolio content, resulting from the acquisition of Sikorsky and the divesture of IS&GS, the company seems on track to exceed the goal later this year. In general, international work across all segments is expanding. The increased sales of F-35 Joint Strike Fighter, missile defense systems, C-130J cargo planes and tactical missiles abroad are testament to this fact. The ageing equipment in allied countries, coupled with an expanding level of global security needs, are creating significant demand for the vast portfolio of products the company has to provide.

• As mentioned previously, Lockheed Martin acquired Sikorsky for about $9 billion last November. The latter is a helicopter manufacturer that supplies military grade rotor aircraft to all five branches of the U.S. military, along with military services and commercial operators in over 40 nations. At the same time, the management decided to also divest the government IT part of its business to Leidos, so as to focus on its core businesses. By swapping its IT services for helicopter manufacturing, Lockheed was eyeing the long-term. It seems likely that the company didn’t want to shoulder an IT services division in a market with increasing price competition, especially when the company was preparing to increase its F-35’s production.

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