This Could Send LMT Stock Soaring
As the largest military contractor, Lockheed Martin Corporation (NYSE:LMT) has the most to gain from the United States’ need to regain a strategic advantage in response to Russian demonstration of military prowess in Syria. Lockheed Martin stock can hit new highs, even if it is already trading at an all-time record range of $220.00. Growth will result from the start of deliveries for the F-35 and from the Pentagon’s need to shift to match a renewed, or perceived, threat from Russia.
Lockheed Martin stock has benefited from the third-quarter results announced last September 27th. Net sales grew to $11.5 billion from $11.1 billion in the third quarter of 2014. The company’s net earnings saw a small drop, but diluted earnings per share grew from $2.76 to $2.77, defeating the analysts’ consensus of $2.72 per share.
Lockheed Martin stock dropped 1.7% after the results were published, settling at $206.97. Nevertheless, this merely reflected unfavorable financial market conditions. Just a few weeks later and LMT stock has been trading much closer to $220.00 than $207.00. The group has confirmed sales expectations of $45.0 billion by the end of 2015 with a consolidated operating profit of $5.55 billion. (Source: Martin Blanc, “Lockheed Martin Corporation (LMT) Beats EPS Estimates In Q3FY15”, BidnessETC, Oct. 20, 2015.)
Here’s Why I’m Bullish on Lockheed Martin Stock
Analysts, however, have not considered the possible impact on Lockheed Martin stock of the strategic review of the activities of service to the government. This is especially true where infrastructure services-related Information Systems & Global Solutions and Missiles & Fire Control are concerned. The programs should total some $6.0 billion in annual sales for 2015, employing over 17,000 people.
The bearish sentiment of analysts on this front should turn to bullish on more careful analysis because Russia’s military exercise in Syria against Islamic State has shown that the right kind of missile can be highly effective against highly mobile militias.
Moreover, Lockheed Martin acquired Sikorsky Helicopter last summer from United Technologies Corporation (XETRA:UTC1.DE). Sikorsky has already collaborated with Lockheed to build the new VH-92 presidential helicopter. It is the original helicopter company, established by helicopter pioneer Igor Sikorsky, who received financial and moral support for his machine from none other than Russian composer Sergei Rachmaninov.
No, this is not Islamic State or the al-Nusra Front; it is the Russian military machine, which had a chance to affirm its might and ability to match any challenge from the NATO block. While American diplomacy may have suffered from the way the White House has chosen to manage the Syria file, Russia’s Syrian military showcase has shown that the United States will have to step up investment in military technologies.
The Syria file has demonstrated political and military paralysis; a paralysis of will, brought on from a mistaken interpretation of the meaning of the Syrian revolt, which began in March 2011, and a paralysis of planning, compounded by the limited availability of military tools at the Pentagon’s disposal for the mission.
The United States was so busy chasing improbable democratic revolts in the Middle East and North Africa that it failed to notice a revolution in Russian military power. Syria is merely the first operational verification of the essential aspects of this void. One of the main areas where the United States can learn from Russian military technology is in missile technology.
Russia has targeted Islamic State bases using the new SSN-30A Kalibr missiles, firing from ships in the Caspian Sea, well over 700 miles away. The U.S. has been putting most of its eggs in heavy dollar-consuming projects like aircraft carriers. The Russians have then used their alliance with the Syrian regime to deploy a Navy cruiser equipped with several dozen S-300 ship to air missiles from the port in Latakia. All missiles deployed hit their targets within eight feet.
Indeed the Tomahawk missile, the closest equivalent to the S-300, made by Raytheon Company (NYSE:RTN), can only be launched by a large ship.
The Russian missile can be fired from virtually any ship. Some analysts have even suggested that Russia is experiencing its “Desert Storm” moment in Syria as the MiG 20 fighter bombers have proven highly effective thanks to their long-range and precision (and much lower production costs). (Source: Cmdr. Daniel Dolan, “Russia’s Desert Storm Moment in Syria,” USNI News, Oct. 26, 2015.)
NORAD commander Adm. William Gortney was sufficiently impressed by the Russian equipment to warn that it poses a new “threat” for U.S. strategic homeland defense. (Source: Pepe Escobar, “Say Hello to my cruise missiles,” Asia Times, Oct.12, 2015.) Not by chance then, United Launch Alliance (ULA), the joint venture formed in 2006 between Lockheed Martin and Boeing, has strengthened its contractual basis to build rockets.
The rockets are intended to launch satellites into space but the program can develop offshoots to improve existing cruise missile technology, giving Lockheed Martin stock a boost of their own. Last September, the U.S. Air Force, (USAF) awarded LMT and Boeing Company (NYSE:BA) an $882 million contract, extending the previous contract to achieve launch capability for the EELV (Evolved Expendable Launch Vehicle) to power Delta IV and Atlas V rockets. (Source: Zacks, Sept. 30, 2015.)
LMT and competitors Raytheon and Boeing are also developing a ballistic missile defense multi-warhead weapon that would be able to detect and destroy incoming enemy missile warheads and decoys with a single missile launch. (Source: John Keller, “Boeing joins Lockheed Martin and Raytheon to develop multi-warhead killer missile defense,” Military and Aerospace Editorials, August 14, 2015.)
Lockheed Martin Launches Marketing Campaign for F-35
Finally, on the Ukraine and former Soviet Republic file, Lockheed Martin stock has much room to soar through the F-22, which is the object of a military/marketing campaign. The F-22 Raptor, a latest-generation fighter by Lockheed Martin, is equipped with the tools to reduce enemy radar tracking capabilities while simultaneously serving as interceptor and bomber.
The F-22 comes equipped with air-to-air and air-to-land missiles. Altogether, this aircraft is one of the most sophisticated weapons the U.S. Air Force, a showcase of American technology. Lockheed Martin shareholders will be pleased to know that LMT has found another opportunity to show off the plane in action in order to increase exports to other countries. The F-22 has participated in missions in Iraq and Syria. But in order to prompt greater interest among European customers, the F-22 will begin deployments in Europe.
The second aspect is geopolitics. The United States is deploying new military aircraft in Europe because of repeated requests from Baltic States, in particular Lithuania, which has long warned of the so-called threat from Russia. The situation in eastern Ukraine and Russia’s display of might in Syria will contribute to improving the F-35’s profile and sales, which will translate to a higher LMT stock value.