Lockheed Progresses On LCS Bid – Analyst Blog

Lockheed Martin Corporation (LMT) is progressing smoothly on the follow on Littoral Combat Ship (LCS) contract bid for the U.S. Navy. 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 along with its partner Marinette Marine Corporation submitted the final proposal revision contract to the U.S. Navy. 

 

Lockheed Martin’s bid is one of two competing bids for the LCS follow-on contract. The other team is led by its arch-rival General Dynamics Corporation (GD) along with Australian shipbuilder Austal’s U.S. arm – Austal USA. The Navy will award the winning team a fixed-price incentive fee contract worth approximately $4.8 billion to provide up to 10 ships as well as combat systems for five additional ships. In the long run the U.S. Navy looks to add as many as 55 ships of the LCS class over the next 25- to 30-year timeframe.

 

Prior to this competition, Lockheed Martin was awarded contracts to construct two LCS ships. The Lockheed Martin-led team designed and constructed USS Freedom (LCS 1), which was delivered to the Navy in 2008 and its first successful deployment finished in early 2010. In March 2009, the Navy awarded the Lockheed Martin team a fixed-price incentive fee contract to build the third LCS. LCS 3, the future USS Fort Worth, is being built in Marinette, Wisconsin. Construction cost and delivery to the Navy in 2012 remain on schedule.

 

Bethesda, Maryland-based Lockheed Martin is a global security company that employs about 136,000 people worldwide. The company principally engages in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.

 

Lockheed announced encouraging second quarter 2010 financial results, with earnings of $1.96 per share. The company’s revenues in the most recent quarter increased 3.3% year over year to $11.4 billion. For fiscal 2010, the company guided revenues in the $45.5 billion – $46.5 billion range and earnings of $7.15 – $7.35 per share. The Zacks Consensus Estimates for 2010 and 2011 are $7.38 and $7.66, respectively.

 

Lockheed’s customer base includes the U.S. government, foreign governments and other commercial buyers. Profitability at Lockheed is largely contingent on defense spending and the contracts it receives from various defense departments. We believe the company will continue to benefit from higher defense outlays going forward.

 

Major peers of the company include The Boeing Company (BA), Northrop Grumman Corporation (NOC) and L-3 Communications Holdings Inc. (LLL).

 

We presently have a Zacks #3 Rank (short-term ‘Hold’ recommendation) on the stock. We also maintain our “Neutral” recommendation on Lockheed Martin.