Of late, the defense industry has not been the best place to put money on. With all the threats involving federal budget cuts and recalls by major industry players, the industry, though a rewarding one, has had its own share of downturns. Lockheed Martin (LMT) though has been having a decent run on the market. With all the uncertainties looming large on the company, the defense segment has consistently been generating good revenues for the company. This has primarily been for the consistent demands for military aircrafts and the concerted efforts by the company’s management to diversify the product base of the company. The investor community has been quite impressed with LMT’s ability to take advantage of all the government funded programs.
The recent performance:
The recent trend in the company’s share prices has been quite positive. With the stock rising by as much as 135%, the company sure has attracted many an investors’ attention. Generally, the military budget cuts affect almost all of the defense contractors. The same was anticipated of LMT, but the company did not fall into any financial ‘doldrum’. The company, on the contrary, has done things that led to greater confidence in the company's future prospects.
The company’s reputation in supplying trustworthy products that prove useful in times of crisis has gone a long way to prevent the company from falling into financial traps. The F-16 and F-22 joint strikes carried out against terrorists in the terrains of Iraq and Afghanistan and various missiles and grenades used in case of militant insurgencies have all been successful and were executed using Lockheed’s products.
The journey ahead:
The company has not only shown a good performance in its military business but has continued the decent run in other segments as well. In the space systems arena, Lockheed recently performed an important test flight of its Orion spacecraft, which CEO Marillyn Hewson sees as seeking to "pave the way for future missions into deep space and capture the imagination of people around the world." Although future NASA funding is arguably even less secure than the military budget, Lockheed nevertheless sees potential in helping to support human space travel well into the future.
Energy has also become an interesting focus for Lockheed Martin. From floating wave-motion electricity generators and natural-gas fuel storage tanks to desalination tanks and even reports of feasible nuclear fusion, Lockheed Martin has developed products that will appeal not just to its traditional military customers but also to untapped markets as well.
The criticisms and relevant solutions:
Having been doing well in the military business, the company still faces a plethora of threats. On the military side, its F-35 stealth fighter jet has been the subject of almost endless criticism, with a huge price tag that could lead many potential customers to think again before finalizing the deal or even eliminate their previous plans to make major purchases of the new aircraft. Especially as unmanned aircraft play an ever-more important role in military operations, manned fighters like the F-35 look increasingly obsolete. Other areas of significant competition are in the areas of space systems.
The F-35 program represents the largest contract in procurement history. The U.S. government plans to buy 2,400 of these multi-role combat fighters. Foreign governments will add another 600 orders. In his most recent budget, U.S. President Barack Obama's budget increased F-35 purchases to 57 fighters for fiscal year 2016, up from 38 the year before. This is at a price tag of $10.9 billion.
The program is projected to cost $400 billion to purchase all those fighters. Another trillion will finance maintenance and upgrades over the program's lifetime. And this is a stream of revenue that will feed into Lockheed Martin's earnings - and by extension, stock price - over the 56-year life cycle of the program.
