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Lockheed Martin to benefit from steady flow of defense contracts

Lockheed Martin (LMT) is one of the few Wall Street companies that registered steady growth over the years. Matching its financial performance, shares of the aerospace giant jumped to an all-time high in February this year and again neared that level in May. But the military aircraft maker’s stock pared some of the gains in the recent weeks amidst competition from the likes of Northrop Grumman (NOC). Ending the slump that started after Lockheed Martin issued downbeat cashflow outlook in April, while reporting better-than-expected earnings, the stock stabilized last week. It coincided with a $1.2-billion contract the company received from the US government to produce more than a dozen fighter jets for the Royal Bahraini Air Force.

RELATED: Q1 earnings beat estimates

On Wednesday, the Bethesda, Maryland-based company, which is one of Pentagon’s most preferred defense contractors, received an order worth $364 million to manufacture missiles for the US army and a foreign customer. The Army Tactical Missile System missiles will be delivered by early 2021. The contract is part of the service life-extension program that allows defense forces to replace their missiles with more advanced and durable ones with significantly higher range. The upgrade will provide forces on the war front with state-of-the-art surface-to-surface missile capability. This week, the company’s aeronautics division received a modification contract worth $175 million from the Naval Air Systems Command for the F-35 Joint Strike Fighter Program. The repair works under the contract, involving various F-35 component repair capabilities, are expected to be completed towards the end of 2021.

Lockheed Martin Wednesday received an order worth $364 million to produce missiles for the US army

The latest deals complement a $736-million government contract the company secured earlier this month for supplying materials and components for the F-35 program, and another order worth $503 million for delivery of spare parts for fighter aircraft. The significance of the contract is that the F-35 program alone accounted for as much as 24% of Lockheed Martin’s sales in the first quarter. The flow of government contracts continued in the second quarter, and the third quarter will not be different. Going forward, the F-35 program is expected to continue to play a pivotal role in the company’s overall financial performance. A sizeable amount has been earmarked in the latest federal budget for acquiring nearly 100 F-35 fighter jets from the company. RELATED: Strikes high with F-35 It is expected that the positive effect of the steady inflow of orders, especially in the aeronautics division, would reflect in the second quarter earnings result, which is scheduled to be released on July 24.

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