Lockheed Wins Deal to Support UK's Trident II Missile Program

Lockheed Martin Corp.’s LMT business unit, Space Systems, recently clinched a modification contract to offer engineering and technical support services, and deliverable materials for the Trident II Fleet Ballistic Missile System. Work related to the deal is scheduled to be over by Jun 30, 2021.

About the Deal

Valued at $18 million, the contract was awarded by the Strategic Systems Programs, Washington, D.C. Majority of the procurement will be executed in Cape Canaveral, FL, and Sunnyvale, CA. The contract will cater to the government of the United Kingdom.

Per the terms of the deal, Space Systems will also support technical planning, direction, coordination and control to ensure that UK Fleet Ballistic Missile Program requirements are identified and integrated.  
Trident II Specifics

Trident II (D5) is the latest generation of submarine-launched fleet ballistic missiles (SLBMs), equipped with multiple independently targetable re-entry vehicles (MIRV) and thermonuclear warheads. Since its design completion in 1989, Trident II has made 167 successful test launches — a record unmatched by any other large ballistic missile or space launch vehicle.

Our View

Of late, increasing geopolitical conflicts, war, and terrorism across the globe have forced developing nations, the United States and other developed countries to significantly boost their missile strength. As a result, the United States — the largest provider of missile defense systems — is witnessing increased number of contracts from its government as well as allies for supplying combat proven missiles.

SLBM is an integral part of the United States’ strategic nuclear deterrent Triad, while Trident II D5 is one of the major SLBM programs in the nation. This surely positions Lockheed Martin, which is Trident’s primary contractor, in a comparatively advantageous spot when it comes to the U.S. Navy’s preferred missile programs. These factors might have helped Lockheed Martin to win the latest contract.

Looking Ahead

The global rocket and missile market, which also includes fleet ballistic missiles, is projected to witness a CAGR of 4.74% during the 2017-2022 period to reach a value of $70 billion by 2022 (as per Markets and Markets research firm). Such projects reflect increased growth opportunities for missile-makers like Lockheed Martin in the aforementioned market, moving ahead.

Moreover, in March 2019, Trump proposed fiscal 2020 defense budget worth $750 billion, which reflects a solid 5% increase from last fiscal’s spending. On approval, such budgetary developments should have a favorable impact on Lockheed Martin’s financials.

Price Movement

In a year’s time, shares of Lockheed Martin have lost 11.2% compared with the industry’s 1.5% decline.

Zacks Rank & Key Picks    

Lockheed Martin currently carries Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are Spirit Aerosystems Holdings SPR, Heico Corporation HEI and AeroVironment, Inc. AVAV. While Spirit Aerosystems sports a Zacks Rank #1 (Strong Buy), Heico and AeroVironment carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

Spirit Aerosystems’ long-term growth estimate currently stands at 7.8%. The Zacks Consensus Estimate for 2019 earnings has moved 3.7% up to $7.56 over the past 90 days.