Defense stocks have seen considerable growth since mid-last year, thanks to the brickbats being exchanged between President Donald Trump and the Supreme Leader of North Korea, Kim Jong-un. Since September 2017, Lockheed Martin (LMT) jumped 11%, Northrop Grumman (NOC) surged 28%, and Raytheon (RTN) grew 16%. The stocks are powered up to continue the rally, but Lockheed Martin packs an extra punch due to its in-built stealth fighter F-35.
The combat jet boasts of numerous features including integrated battlefield view, network-enabled operations as well as laser-precision targeting. The company, as well as the government, were chastised during the aircraft’s designing process, pointing at the massive amounts spent on the project as well as the defects in the design. However, high demand from various countries, despite a staggering price tag of around $1.5 trillion, will make sure Lockheed Martin tides easily through the ups and downs of the stock market in the coming quarters.
The company is likely to work with Pentagon in the coming days to work ways to reduce the price. And why not, Lockheed Martin has a history of cutting down on the prices of aircraft. A price reduction could, in turn, lead to pressure on its margins, but the high volume of orders should help the company maintain a straight balance sheet. Pentagon alone is planning to buy about 2,400 F-35s.
And we have been talking only about the aeronautics segment so far. The defense contractor, which reported $51.05 billion in sales last year, has three more high-octane segments, including Space operations that reported sales of a massive $9.5 billion last year.
Apart from these, Lockheed Martin, last week grabbed another big deal with the Kingdom of Saudi Arabia in a contract valued at $481.1 million. Under the agreement that may expand in value to up to $22 billion, Lockheed Martin will build and supply MMC warships to the oil-rich Kingdom.
Analysts expect Lockheed Martin to post high single-digit growth in revenue in the next three years, based on these contracts as well as the promises in Trump’s 2019 budget that vows to modernize and rebuild the military. The company will see a boost once the F-35 sales pick up, in conjunction with the healthy missile sale it is already witnessing.
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