-Lockheed Martin's 2013 top line fell by 4% annually to $45.4 billion due to the U.S. government’s across-the-board spending cuts, called sequestration.
-Lockheed, which generates more than 80% of its revenues from government contracts, will likely be challenged in driving its growth.
-We figure a ramp-up in the F-35 fighter jet’s production and international sales are the two biggest growth opportunities for Lockheed in the coming years.
-We currently have a stock price estimate of $164 for Lockheed, approximately in-line with its current market price.
Lockheed Martin's (NYSE:LMT) 2013 top line fell by 4% annually to $45.4 billion due to the U.S. government’s across-the-board spending cuts, called sequestration. In the current year, due to flat defense spending from the government, the company anticipates its top line will decline further to about $44.8 billion, at the mid-point of its revenue forecast range. Now, in our opinion, U.S. defense spending will likely continue to remain weak through this decade due to budgetary pressures. The Budget Controls Act of 2011 requires defense spending cuts totaling $500 billion over a ten-year period that began in 2012. So Lockheed, which generates more than 80% of its revenues from government contracts, will likely be challenged in driving its growth. In such a tough environment, what are Lockheed’s two biggest growth opportunities? We figure a ramp-up in the F-35 fighter jet’s production and international sales are the two biggest growth opportunities for Lockheed in the coming years.
We currently have a stock price estimate of $164 for Lockheed, approximately in-line with its current market price.
Planned Hike In The F-35′s Production Rate Will Help Lift Lockheed’s Top Line
The F-35 program, which is Lockheed’s single largest program constituting around 16% of its overall revenues, is currently producing fighter jets at a low rate. This is because the program is in its initial stages with the development of the F-35 still progressing. However, in the coming years, the company plans to scale up F-35′s production to full rate. We figure this will help return Lockheed’s top line to growth trajectory after 2014. This hike from low-rate initial production to full-scale production will also help Lockheed generate cost savings through improved production efficiencies. So, apart from lifting its top line, this planned ramp-up in the F-35′s production will also help improve Lockheed’s margins.
Additionally, the F-35′s development is on track with completion expected in 2019. The company will likely also get to produce around 3,000 F-35s, in-line with the initial plan, as the U.S. government has on many occasions said that it will buy its promised share of about 2,400 F-35s and international orders for the jet are continuing to flow in. International Sales Also Present A Big Growth Opportunity For Lockheed
Rising international sales, including those for the F-35, is the second big growth opportunity for Lockheed, in our opinion. Until a few years back, Lockheed was generating more than 85% of its revenues from the U.S. government. But that percentage has steadily come down in recent years as Lockheed began to focus on the international market in response to the flat-to-declining defense spending from the U.S. government. The company currently targets to generate 20% of its overall revenues from the international market within the next few years. And we figure this figure is achievable as international orders already constitute around 25% of the company’s backlog.
Margin expansion opportunities are expected to emerge in the future as our program portfolio expand the international program, plus a transition from the current 50-50 mix of development versus production programs to a higher proportion of production work. As key development program such as the F-35 Joint Strike Fighter, Littoral Combat Ship, THAAD Missile Defense System and satellite programs mature.
I know our leadership team is up to the challenge of delivering on the commitments we’ve made to our customers with respect to these important and growing production programs.
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-Time's Battleland - 5 Part series on F-35 procurement - 2013
-Summary of Air Power Australia F-35 points
-Bill Sweetman, Aviation Week and the F-35
-U.S. Government Accounting Office (GAO) F-35 reports
-F-35 JSF: Cold War Anachronism Without a Mission
-History of F-35 Production Cuts
-Looking at the three Japan contenders (maneuverability)
-How the Canadian DND misleads the public about the F-35
-Value of STOVL F-35B over-hyped
-Cuckoo in the nest--U.S. DOD DOT&E F-35 report is out
-6 Feb 2012 Letter from SASC to DOD boss Panetta questioning the decision to lift probation on the F-35B STOVL.
-USAFs F-35 procurement plan is not believable
-December 2011 Australia/Canada Brief
-F-35 Key Performance Perimeters (KPP) and Feb 2012 CRS report
-F-35 DOD Select Acquisition Report (SAR) FY2012
-Release of F-35 2012 test report card shows continued waste on a dud program
-Australian Defence answers serious F-35 project concerns with "so what?"
-Land of the Lost (production cut history update March 2013)
-Outgoing LM F-35 program boss admits to flawed weight assumptions (March 2013)
-A look at the F-35 program's astro-turfing
-F-35 and F-16 cost per flying hour
-Is this aircraft worth over $51B of USMC tac-air funding?
-Combat radius and altitude, A model
-F-35A, noise abatement and airfields and the USAF
-Deceptive marketing practice: F-35 blocks
-The concurrency fraud
-The dung beetle's "it's known" lie
-F-35's air-to-air ability limited
-F-35 Blocks--2006 and today
-The F-35B design is leaking fuel
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