Lockheed Martin Nabs $724M US Missile Agency Contract

Lockheed Martin (LMT) has been awarded a sole-source, cost-plus-incentive-fee and cost-plus fixed-fee contract from the US Missile Defense Agency worth just over $724 million, inclusive of all options.

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Under this follow on contract, LMT will conduct full development and lifecycle engineering for the Aegis Weapon System (AWS) fielding for cruisers, destroyers and Aegis Ashore configurations.

The AWS contract will support the following efforts, says the US Department of Defense: Aegis Baseline (BL) 5.4.1 (Ballistic Missile Defense (BMD) 4.2) development; BL 9 (BMD 5.X) development; Aegis BMD In-Service support; BMD ground and flight test support; modeling and simulation support; Aegis Ashore Missile Defense Test Complex combat system engineering, testing, site support, modernization, technical and logistics support; and Aegis BMD ship installation and planning.

The work will be performed in Moorestown, New Jersey, with an estimated completion date of February 2024.

“Fiscal 2020 and fiscal 2021 research, development, test, and evaluation; and fiscal 2021 procurement defense wide, and operations and maintenance funds in the amount of $45,036,867, will be obligated at the time of award” the defense department stated.

The Missile Defense Agency, Dahlgren, Virginia, is the contracting activity.

Following Lockheed’s quarterly results, Cowen & Co. analyst Cai Rumohr reiterated his Buy rating as well as a price target of $410 (17% upside potential).

In a note to investors on Oct. 20, Rumohr wrote: “Solid Q3 beat & 2020 guide nudge are in line with LMT’s beat & raise pattern. But investors will focus on narrow 2021 sales guide hike of 2.6% to “at least $67B” vs. Street’s $68B. Investors may be neutral/negative given concerns of slowing defense growth.” (See LMT stock analysis on TipRanks).

However ultimately the analyst sticks to the bull side, arguing that: “LMT’s continuing sales/EPS beats, 2020 hikes, and foreign order potential extend prospects for MSD (Management Systems Designers) gains; and its healthy cash flow & flexibility allow continuing HSD (Horizontal Situational Display) dividend hikes. Scarcity value merits its 13.6x 2021 TEV/EBITDAP.”

Currently, the Street is cautiously optimistic on the stock, with analysts split between hold and buy. This results in a Moderate Buy analyst consensus. The average price target of $450 implies upside potential of about 29% to current levels. Shares are currently trading down 10% year-to-date.