Lockheed Martin Corporation (LMT) received a $245 million contract from the U.S. government for the sale of three KC-130J tanker aircraft to Kuwait Air Force. The contract categorized as foreign military sales by the U.S. government will be managed by the U.S. Navy.
 
Lockheed Martin’s KC-130Js will provide aerial refueling for Kuwait Air Force’s F18 fighter jet fleet and augment its current airlift fleet of three Lockheed Martin military transport aircraft L-100s. The company expects to deliver the first unit in late 2013, and complete deliveries by early 2014.
 
Lockheed Martin’s KC-130J tanker aircraft has a 57,500 pound fuel offload capability. The KC-130J is configured to accept a fuselage tank, adding another 24,392 pounds of available fuel. The standard probe-and-drogue configuration of the KC-130J is suited for both fixed and rotary wing aircraft. In addition to aerial and ground refueling, the KC-130J has the same airlift capability as non-tanker variants – including airdrop and paradrop.
 
Lockheed Martin remains a key player within the military space and continues to benefit from strong defense spending. The company’s customer base includes the U.S. Government, foreign governments and other commercial buyers. Lockheed Martin’s traditional defense focus appears strong, with increasing interest from domestic and international customers.
 
In addition, management intends to explore strong business opportunities beyond the traditional defense market, specifically in the areas of civil, governmental and commercial space businesses. The company mainly competes with Boeing Company (BA), General Dynamics Corporation (GD), and Northrop Grumman Corporation (NOC).
 
Lockheed Martin will continue to benefit from higher defense spending. The core defense budget for fiscal year 2010 and 2011 outlined a ceiling of $531 billion and $549 billion, respectively, or a growth of approximately 4% above the fiscal 2009 budget.
 
Also, the budget focuses on Lockheed Martin’s programs like the F-35 Lightning II Joint Strike Fighter program, the Advanced Extremely High Frequency (AEHF) satellite program, the Littoral Combat Ship (LCS) program, the Aegis Weapons System and the Terminal High Altitude Area Defense (THAAD) system.
 
Going forward, we believe Lockheed Martin has significant upside potential based on the Obama Administration’s focus on Smart Power application and cyber security. Lockheed Martin finished the first quarter of fiscal 2010 with $75 billion of backlog, of which $26 billion belonged to the Aeronautics segment and $21.1 billion to the ES segment.
 
However, we believe all the above-mentioned positives have already been taken into account in the current share price. This justifies the Zacks Rank #3, which translates into a short-term “Hold” recommendation.
 
Considering the company’s business model and fundamentals, we have a long-term “Neutral” recommendation on the stock.
Read the full analyst report on “LMT”
Read the full analyst report on “BA”
Read the full analyst report on “GD”
Read the full analyst report on “NOC”
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