Tensions with Russia Could Mean Profits for Lockheed Martin Stockholders
Lockheed Martin Corporation (NYSE:LMT) has been trading in the $220.00 range, an all-time high since Lockheed and Martin Marietta merged to form the present defense sector contractor in the 1990s. Lockheed Martin stock has continued to climb unperturbed by the fact that the company has lost a potential $80.0 billion contract to build the U.S. Air Force’s (USAF) next stealth bomber to competitor Northrop Grumman Corporation (NYSE:NOC).
News of greater U.S. direct military involvement in Syria, where U.S. military contractors will have a chance to show off their technologies in the face of a highly effective Russian air campaign, has certainly contributed to the market’s response.
The Russians have shown they have impressive new Kalibr missiles that can be launched from small ships in the Caspian Sea and hit their target at Mach-3 with precision 1,500 miles away. The Russian air force has also shown that their Soviet era and aging Mi-24 Hind helicopters are still formidable when operated by skilled pilots. The Mi-24 is armed with 30 mm guns and rockets while being able to carry troops. It is also fast for a helicopter that does both of these things; easily able to travel at almost 200 mph skimming treetops.
Whatever the official bulletins from NATO may say, it is not easy to dismiss the success of Russia’s mission to rid Syria of Islamic State and other militias. The Pentagon will be watching closely and taking pointers to help improve U.S. military capability in such scenarios, characterized by asymmetric warfare, while also being able to confront the military ambitions of rising superpowers such as China and Russia itself.
This Could Be Huge for Lockheed Martin Stockholders
Even those investing in defense-related items such as raw materials like aluminum and titanium to more civilian-oriented aerospace companies like The Boeing Company (NYSE:BA) can expect a period of high returns in the next few months.
Meanwhile, Lockheed Martin is in the front line for the U.S. response to Russian missiles and helicopters. Last summer, as owners of LMT stock are aware, the company bought Sikorsky Helicopters from United Technologies Corporation (NYSE:UTC). This was a top gun move, because as the Russians have shown, helicopters are very relevant to current and near-future combat conditions. Sikorsky has two new helicopters in the pipeline and both have flown, moving into final development stages.
LMT’s Sikorsky’s S-97 Raider, an aircraft destined to change the very shape of attack helicopters in the coming years, marked a watershed for the industry and for Lockheed Martin’s portfolio of military and civil projects. The S-97 Raider uses a coaxial rotor which allows it to use the tail rotor for propulsion—that is, speed—instead of countering the main rotor’s torque.
This makes it very fast: 250 mph fast, a speed record. Meanwhile, it can also ferry up to six soldiers to the battlefield—aside from the two-man crew—which, combined with its speed, makes it a formidable weapon platform. In other words, it will not end up in a drawer, as did the RAH-66 Comanche project. (Source: “Sean Gallagher, A walk around Sikorsky ‘Raider,’ contender for world’s fastest military copter,” Ars Technica, October 13, 2015.)
The Sikorsky S-97 Raider has entered the main flight test stage. The company has even suggested that a civilian use variant is likely: business aviation, oil platform service, search and rescue, and medical evacuation. Speed and discretion, again, are the two advantages of the S-97 and the operational flexibility is one major reason for owners of LMT stock to be interested.
Tests will evaluate performance as related to armed reconnaissance, attack, and special operations. The S-97 seems like the ideal 21st century response to Russia’s Mi-24. Final assembly of the second prototype should be completed before the end of 2015 while a road show is planned for 2016.
Sikorsky is also in the last stage of developing the CH-53K King Stallion, the heir to the iconic CH-53 helicopter, powered by three engines and capable of great load capacity, maximum takeoff weight potential, and speed.
The giant three-engine Sikorsky, intended for the Marine Corps, has made its first flight and it will enter service in 2019. It will be the largest helicopter in service with dimensions similar to those of the latest CH-53 family variant, the CH-53E Super Stallion. However, it will be able to carry almost three times as much total load (over 12 metric tons) at a distance of over 110 miles in even the toughest conditions.
As for missiles, Lockheed Martin has something to challenge Russia’s Kalibr, the THAAD—even if at much greater cost. Nevertheless, The U.S. is part of NATO and members are encouraged to purchase American weapon systems.
Lockheed Martin said it is in talks with South Korea to sell its THAAD missile monitoring system, which can monitor up to 1,250 miles, meaning that if it were deployed at the American military base in Korea at Pyeongtaek, most of China’s missile bases would be subject to U.S. surveillance. (Source: “U.S. THAAD missile defense weighed for South Korea to counter Pyongyang threat,” The Japan Times, October 16, 2015.)
Here’s the Bottom Line for Lockheed Martin Stockholders
While all that sounds great, it has drawn China’s protests, prompting the Pentagon to hold LMT stock back on the sale—at least until political discussions between Beijing and Washington continue. LMT says the THAAD is not an offensive weapon; it is strictly a defense tool.
Still, South Korea’s interest in THAAD, new helicopters in the pipeline, several other defense programs and a major marketing campaign to sell the F-35 are underway, and LMT stock is set to continue its climb toward new peaks.