Per a recent news release, Lockheed Martin Corporation’s (LMT) F-35 Lightning II Joint Strike Fighter may have to use only one type of engine. Till date two separate, interchangeable F-35 engines are under development. Of the two engines under development, United Technologies Corporation’s (UTX) Pratt & Whitney F135, is being used as the main engine. The second engine, F136, developed by General Electric Company (GE) and Rolls-Royce plc is being developed as the alternative engine.
However, there is growing speculation in the media that the U.S. Defense Department is expected to issue an order to stop work on the F136 engine.
Lockheed’s F-35 is a supersonic, multi-role, stealth fighter developed and funded by a consortium of nine countries, including Canada. It is designed to excel in both air-to-air and air-to-ground operations and features the most comprehensive and powerful avionics that any fighter aircraft has ever produced. Lockheed is developing the F-35 together with its principal industrial partners, Northrop Grumman Corporation (NOC) and BAE Systems Plc.
Speculation over the engine choice being axed for F-35 is simmering due to Defense Secretary Robert Gates’ ambitious plans to save $13.6 billion between 2012 and 2016. The Zacks forecast of GDP growth for 2011 is now at just around 3.7%. We now see greater downside risks to our GDP forecast for the U.S. economy in the near term, which may affect government spending on defense.
Lockheed ended 2010 on a strong note, with both its fourth quarter 2010 earnings per share of $2.30 and fiscal 2010 earnings per share of $7.18 surpassing the Zacks Consensus estimates. The company issued 2011 earnings per share forecast in the range of $6.70 – $7.00.
The Zacks Consensus Estimates for the first quarter 2011, fiscal year 2011 and fiscal year 2012 currently stand at $1.51 per share, $6.99 per share and $8.62 per share, respectively.
Lockheed Martin is the largest U.S. defense contractor with a platform-centric focus and a steady inflow of follow-on orders with a leveraged presence in the Army, Air Force and Navy. However, the ongoing trend of governmental delays in program decisions coupled with program cancellations has affected the fortunes of the defense industry in general and Lockheed Martin in particular.
Lockheed Martin currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. Our strategy stems from headwinds concerning the company’s largest program – F-35 Joint Strike Fighter facing margin blues.
GENL ELECTRIC (GE): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
UTD TECHS CORP (UTX): Free Stock Analysis Report
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