Lockheed Martin Corporation: What’s So Wrong With Being a Pure Play?


This article was written by Mingyue Liu, a Financial Analyst at I Know First.

Lockheed Martin Corporation: What’s So Wrong With Being a Pure Play?

“President Obama’s reckless defense cuts that are hanging over our cloud, hanging over the horizon could put almost 44,000 jobs at stake right here in Pennsylvania. We are not going to let that happen. You know why? Because No. 1, national defense is the first priority of the federal government.” (Paul Ryan)


  • F-35 is the powerful support to Aeronautics segment’s sales
  • Rotary and Mission Systems (RMS) segment is capable of dealing with varied missions
  • Space Systems segment is faced with increasing competition, yet is considered to be safe
  • Missiles and Fire Control (MFC) segment enjoys interesting growth opportunities

For those who are military enthusiasts, you certainly know Lockheed Martin (LMT) better than I do. For those who are new to National Defense and U.S. Military, LMT is among the first things you should know about.Lockheed Martin

Lockheed Martin

Lockheed Martin is a security and aerospace company. It was formed by the merger of Lockheed Corporation with Martin Marietta in 1995, with its headquarter in Bethesda, Maryland, in the Washington, DC, area. The company is the largest defense contractor in the world and is the undisputed leader in next-generation fighter aircraft, after being awarded the F-35 program in 2001. Total sales for Lockheed in 2016 stood at $47.2 billion. The Company operates through four segments—Aeronautics segment, Rotary and Mission Systems (RMS) segment, Space Systems segment, and Missiles and Fire Control (MFC) segment. I will elaborate their business and functions, respectively, in the following paragraphs. Given its diversified portfolio consisting of the four segments, LMT should not be classified as a pure-play. However, a jaw-dropping proportion of the company’s sales, 71%, were from the U.S. Government for year 2016, and this percentage is not expected to drop in the future.

The company is a true pure play on government projects, and it is thriving on this.

Aeronautics segment

This segment is engaged in the research, design, development, manufacture, integration, sustainment, support and upgrade of military aircraft, including combat and air mobility aircraft, unmanned air vehicles and related technologies. U.S. Government accounted for 66% of 2016 segment sales, and the rest came from international customers.

Lockheed Martin

Aircrafts from top to bottom, from left to right, are three variants of the F-35— F-35A, F-35B, and F-35C— C-130 Hercules, F-16 Fighting Falcon, F-22 Raptor, and C-5M Super Galaxy

Source: Lockheed Martin Corporation

Star of Aeronautics SegmentF-35 Lightning II

It is a fifth-generation fighter, combining advanced stealth with fighter speed and agility, fully fused sensor information, network-enabled operations and advanced sustainment. According to Dallas Business Journal, the F-35 is basically a flying super computer. One fact that can give you a sense of the sophistication of F-35 is that its avionics require 24 million lines of code, while the F-16, which is still in service as a capable fighter aircraft, required only 135,000 lines.

The company signed a $8.5 billion deal with Pentagon in February to deliver 90 F-35 jet fighters. Most recently, LMT scored another $5.5 billion contract on July 7 from the U.S. Navy for Lot 11 F-35 Lightning II aircraft. According to the U.S. DoD, the contract is for 74 F-35s, including 48 F-35A for the U.S. Air Force, 18 F-35B for the Marine Corps, and 8 F-35C for the U.S. Navy and Marine Corps. The delivery is supposed to be completed by the end of 2020. In addition, another contract is set to be awarded later in July, which would add another 50 F-35 to the backlog for $2.2 billion. According to Nasdaq, the U.S. government is expected to spend approximately $400 billion in the upcoming decades to develop and purchase 2,443 F-35 jets. Who knows how large the next contract will be!

The fighter is also a hit worldwide—besides the U.S., eleven other countries were named in F-35’s latest Program of Record, including U.K., Italy, Netherlands, Turkey, Australia, Norway, Denmark, Canada, Israel, Japan and South Korea.

Rotary and Mission Systems (RMS) segment

This segment provides design, manufacture, service and support for a variety of military and commercial helicopters, ship and submarine mission and combat systems, mission systems and sensors for rotary and fixed-wing aircraft, sea and land-based missile defense systems, radar systems; the Littoral Combat Ship (LCS), simulation and training services; and unmanned systems and technologies. In addition, RMS supports the needs of government customers in cybersecurity and delivers communications and command and control capabilities through complex mission solutions for defense applications. In 2016, U.S. Government customers accounted for 68% of RMS’ net sales.

Black Hawk Rise

LMT acquired Sikorsky in November 2015, which was one of the world’s largest helicopter companies that designs, manufactures, services and supports military and commercial helicopters. The most well-known helicopter of Sikorsky is Black Hawk. On June 30, 2017, the U.S. government and Sikorsky signed a contract for 257 H-60 Black Hawk helicopters. The contract is estimated to be worth $3.8 billion, and the delivery is expected to be completed in five years. This contract also includes an option for an additional 103 aircraft, pushing the value of the contract to roughly $5.2 billion.

Lockheed Martin

A UH-60L Black Hawk helicopter crewed by 1st Lt. Chuck Nadd, Chief Warrant Officer 4 Darren Dreher, Staff Sgt. Bruce Kleckner, and Sgt. Jay Herring, all members of Task Force Phoenix, flies over Kabul, Afghanistan while conducting a personnel movement mission, Sept. 4, 2013.

According to Forecast International, a premier provider of market intelligence forecasting, proprietary research and consulting services for the worldwide Aerospace, Defense, Electronics and Power Systems industries, Sikorsky is expected to capture 30.5% of rotorcraft’s global market share from 2015 to 2029. This dominant position is estimated to grant LMT a value of $42.7 billion for this time period.

Lockheed Martin

In addition, Sikorsky leverages military technologies underwritten by the U.S. government in the commercial market, further strengthening its edge in intangible assets over competitors.

Aegis combat system

The Aegis Combat System is an integrated naval weapons system. It uses powerful computer and radar technology to track and guide weapons to destroy enemy targets. Initially used by the United States Navy, Aegis is now used also by the Japan Maritime Self-Defense Force, Spanish Navy, Royal Norwegian Navy, and Republic of Korea Navy.

DoD announced on July 11 that Lockheed Martin Mission would be awarded $42 million for providing lifetime software maintenance for the AEGIS systems in the Royal Australian Navy’s Hobart-class destroyers.

Lockheed Martin

On June 16, the Royal Australian Navy received its first Aegis-supported Hobart-class air warfare destroyer, with two more yet to come.

Source: Commonwealth of Defense

On June 13, the company was awarded a $108 million contract for the Advanced Radar Threat System Variant 2 (ARTS-V2). This contract is expected to complete by June 2027. ARTS-V2 will be capable of replicating radio frequencies, radar waveforms, jamming systems, mobility, and operational tactics and procedures of multiple foreign fielded air defense systems. This includes the acquisition and tracking of several aircraft simultaneously, and will be able to represent multiple threats at once, including targeting radars, electronic warfare and counter-jamming.

Common Organizational Level Tester (COLT) System On July 11, the U.S. Air Force signed a $7.2 million contract with LMT.  According to the contract, the Betheda-based company will provide logistics support for Common Organizational Level Tester (COLT) system, including program management, engineering, depot repair, travel and modifications. COLT system is a military aircraft tester that can detect problems on an aircraft. The contract is scheduled to be completed on September 29, 2018.

Vehicle Crew Training System The company scored a $288 million contract recently, on July 10, to provide a cost effective, modular, user friendly training solution that combines multiple training systems for vehicle crews into a single product line. This program is conducted by LMT and Saab, a defense and security company.

Space Systems segment

This segment is engaged in the research and development, design, engineering and production of satellites, strategic and defensive missile systems and space transportation systems. This segment is also responsible for various classified systems and services in support of vital national security systems. Space Systems segment represented 20% of 2016 total sales. U.S. government customers accounted for 91% of the total sales.

This segment is faced with increasing competition from SpaceX and Blue Origin, both of which are new entrants in space-launch industry. However, this should not be much of a concern to the company. First of all, a bulk of this segment’s revenues, over 50% of 2016 sales, came from satellites projects of U.S. DoD. This can be thought of as a stable source of demand. In addition, 30% of its business is related to highly classified and bespoke nuclear missile work and missile defense systems, which are not subjected to intense competition. Only the remainder, 15%-20%, were from space-launch services.

Missiles and Fire Control (MFC) segment

This segment provides air and missile defense systems, tactical missiles and air-to-ground precision strike weapon systems, logistics, fire control systems, mission operations support, readiness, engineering support and integration services, manned and unmanned ground vehicles, and energy management solutions. This segment accounted for 14% of 2016 revenues. U.S. government customers accounted for 61% of MFC’s total sales. This segment competes in a duopoly with Raytheon in U.S. missile production.

Terminal High Altitude Area Defense (THAAD)

Lockheed Martin

Following North Korea’s test launch of an intercontinental ballistic missile (ICBM), which could potentially reach Alaska, pressure has been weighing on THAAD. THAAD was designed to intercept and destroy short, medium and intermediate-range ballistic missiles during their final phase of flight. On 12 July, the company’s vice president announced that 14 out of its 14 tests for the THAAD weapon system, operated “flawlessly”.

What’s more, the U.S. and South Korea has agreed to apply “maximum pressure” on Pyongyang to push the dictator to dialogue over its nuclear weapons and missile testing, according to South Korea’s Yonhap News Agency. However, this bubble is more than likely to burst, given North Korea’s attitude. This would probably bring LMT another deal.

Guided Multiple Launch Rocket System (GMLRS) On July 12, LMT was awarded a $471.7 million contract from the U.S. Army for the Lot 12 production of GMLRS rockets, which is an all-weather rocket designed for fast deployment that delivers precision strike beyond the reach of most conventional weapons. The contract is expected to be completed by the summer of 2019.

Sniper Advanced Targeting Pod (ATP) On July 10, the company received a commercial contract from Bahrain Defense Force (BDF), valued at $22.45 million, to deliver Sniper ATP for its F-16 fleet. This contract is expected to be completed in early 2018.

Technology Maturation and Risk Reduction (TMRR) phase of Long-Range Precision Fires (LRPF) program The company announced on July 6 that it has received a contract for the 34-month Phase 2 development of LRPF system, value of which is $73.8 million.


Lockheed Martin

Looking forward, Trump’s $110 billion arms deal with Saudi Arabia announced in May will be begin as early as 2018, which stands for a promising opportunity for Lockheed.

Trump administration and congressional Republicans want to enact sizable tax cuts for corporations, from the current rate of 35% to a targeted 15%. What is also notable is that Trump, unlike Obama, do not emphasize a balanced budget between Healthcare and Social Security.

In many cases, DoD does not have a choice but to turn to Lockheed. The government’s switch costs are high because of the mission-critical nature of jet fighters, training costs, and commonality issues. For example, $17.4 billion worth of contracts in 2012 was non-competed, accounting for over 37% of that year’s revenues.

Persistent zeal for F-35 has no sign of slowdown. The Aviation Week Intelligence Network forecasts that Lockheed will contribute to more than 60% of the value of fighter aircraft production between 2016 and 2020. By 2020, the F-35 will account for 70% of the aeronautics segment’s revenue and roughly 30% of Lockheed’s total revenue. The company is working diligently to reduce costs of F-35, in accordance with President Trump’s require. The cost of building a F-35 was $244 million for Lot 1, while the most recent price (Lot 10) of F-35A, the most popular jet fighter, is roughly $94 million. The company set the goal of delivering the craft at less than $85 million per jet by Lot 13.

Dominant position in manned combat aircraft manufacturing industry is expected to strengthen, as competitors such as Boeing are shutting down their businesses in this field.

Worldwide turbulence will definitely grant Lockheed a strong support to its sales. As a result, I hold bullish outlook toward LMT stock, which resonates with I Know First forecast released on July 16, 2017.

Lockheed Martin

Past I Know First success with LMT

On July 11, 2014, I Know First published bullish forecast on LMT. Since then, the stock price has rocketed by over 128%, showing another success of I Know First algorithm in forecasting stock movement.Lockheed Martin

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go. (positive = to go up = Long, negative = to drop = Short position). The signal strength relates to the magnitude of the expected return. We use the signal strength for ranking purposes of the investment opportunities. Predictability is the actual fitness function being optimized every day and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. It allows the user to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal. Lockheed Martin To subscribe today and receive exclusive AI-based algorithmic predictions, click here.Outlook for Gold Prices