Defense contractor Lockheed Martin Corp. (LMT) received a $16.6 million contract from the Naval Air Systems Command (NAVAIR) to develop software for Tactical Tomahawk Weapons Control System (TTWCS) that controls Tomahawk Land Attack Missile. The company also highlighted that the contract value could amount to $50.7 million if the Navy exercises the option to extend it over four years.
The major function of TTWCS includes assimilation of the launch hardware and software that facilitate weapon control for the Tomahawk Land Attack Missile variants.
Under the terms of the contract, Lockheed will provide systems engineering, software development, hardware support and management to upgrade the missile’s hardware and software.
Ship classes programmed for the Tomahawk capability include the CG 47 class cruisers, DDG 51, and Zumwalt class destroyers, SSGN, SSN 688, SSN 21, and SSN 774 class submarines. Integrating the Tomahawk Weapons System with these launch platforms will provide the fleet with improved capabilities.
Lockheed Martin is the largest U.S. defense contractor and continues to benefit from higher defense spending. The company also possesses one of the strongest balance sheets among its peers.
The company’s core position in the U.S. Defense Budget on growth programs with international sales exposure should continue to exhibit upside potential in the coming years.
However, we remain skeptical on Lockheed Martin’s large percentage of business that comes from the U.S. government (85% of sales in 2009). Budget deficits and political uncertainty can hit hard the budget allocation for the company. Moreover, Lockheed carries a sizeable pension liability. The company’s operating earnings can be affected by high pension costs in lower interest rate environments. Thereby, we maintain our Zacks #3 Rank (Hold) for Lockheed.
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