A team led by Lockheed Martin Corporation (LMT) was awarded a $376 million U.S. Navy Contract to construct the second Littoral Combat Ship (LCS).
The fixed-price-incentive-fee contract provides funding for the second of 10 ships the U.S. Navy had awarded to the Lockheed Martin team in December 2010. The funding contracts for the remaining eight ships will be awarded through 2015.
Earlier the Lockheed Martin industry team designed and constructed the nation’s first LCS, USS Freedom. USS Freedom was commissioned in 2008. The Lockheed Martin led team had already completed more than 85% work on the second LCS which remains on schedule and on budget for delivery to the Navy in 2012.
Littoral Combat Ship is a vessel operating in coastal waters carrying out tasks like maritime interdiction, anti-submarine warfare and special operations support. The company’s partners in the contract Marinette Marine Corporation will construct the ships in Marinette, Wisconsin, and naval architect Gibbs & Cox will provide engineering and design support.
In the long run the U.S. Navy looks to add as many as 55 ships of the LCS class over the next 25–30 year timeframe. For this the Navy had employed another team led by General Dynamics Corporation (GD) along with Australian shipbuilder Austal’s U.S. arm – Austal USA to build another 10 ships.
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 corresponding 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, $6.98 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.
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