Lockheed Martin Scores Over $740M In Navy Contract Modifications

Lockheed Martin’s (LMT) Sikorsky Aircraft Corp has been awarded a $550,372,323 modification to a previously awarded fixed-price-incentive, firm-fixed-price contract (N00019-16-C-0048).

This modification is for Lot IV low rate initial production and delivery of six CH-53K aircraft and associated aircraft, programmatic and logistics support, rate tooling and physical configuration audits.

Work will be performed in mainly in Stratford, Connecticut, as well as other countries like the UK and Canada, and is expected to be completed in July 2024, the US Department of Defense said.

At the same time, Lockheed itself was awarded a $193,980,348 contract modification to a previously awarded firm-fixed-price contract (N00019-19-C-0013) by the US Naval Air Systems Command.

This modification adds $180,000,000 for the production and delivery of four MH-60R aircraft and exercises a $13,980,348 option to procure three airborne low frequency sonars in support of the government of Greece.

Work will be performed mainly in New York and Connecticut but also France and Rhode Island, and is expected to be completed in February 2025.

Lockheed Martin recently reported an earnings beat, and boosted its full-year 2020 sales outlook to $65 billion from the previous guidance range of $63.50-$65 billion. It also raised its earnings guidance range from $23.75-$24.05 to $24.45 per share.

“In the third quarter, our dedicated workforce and resilient supply chain continued to support our customers’ vital national security missions, overcoming the challenges of the pandemic,” said LMT CEO James Taiclet. “As a result, we delivered strong results across our key financial metrics and we expect to build on this success through the remainder of the year.”

Following its quarterly results, Cowen & Co. analyst Cai Rumohr reiterated his Buy rating as well as a price target of $410 (11% upside potential).

In a note to investors on Oct. 20, Rumohr wrote: “Solid Q3 beat & 2020 guide nudge are in line with LMT’s beat & raise pattern. But investors will focus on narrow 2021 sales guide hike of 2.6% to “at least $67B” vs. Street’s $68B. Investors may be neutral/negative given concerns of slowing defense growth.” (See LMT stock analysis on TipRanks).

However ultimately the analyst sticks to the bull side, arguing that: “LMT’s continuing sales/EPS beats, 2020 hikes, and foreign order potential extend prospects for MSD (Management Systems Designers) gains; and its healthy cash flow & flexibility allow continuing HSD (Horizontal Situational Display) dividend hikes. Scarcity value merits its 13.6x 2021 TEV/EBITDAP.”

Currently, the Street is cautiously optimistic on the stock, with analysts split between hold and buy. This results in a Moderate Buy analyst consensus. The average price target of $450 implies upside potential of about 22% to current levels. Shares are currently trading down 5.4% year-to-date.

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