Faced with an increasingly aggressive Iran in the waters of the Persian Gulf, the United States Navy is looking for a few good missiles (to take them on). Luckily, it may have found the missiles it needs.

Despite all the warm and fuzzy feelings engendered by the recent nuclear accord with Iran, Iranian warships have been giving the U.S. Navy conniptions in the Persian Gulf this year. This week, an Iranian naval frigate trained its guns on a U.S. Navy helicopter that was performing training maneuvers with an auxiliary vessel. No shots were fired in the encounter. But at least twice this year, armed patrol boats from the Iranian Revolutionary Guard have fired upon unarmed merchant vessels.

It is the threat posed by these fast-attack boats, the mainstay of the Iranian navy, that our own navy aims to address.

The OPFOR

According to published sources, the Iranian navy and Revolutionary Guard own only a handful of real warships -- submarines, corvettes, and frigates. The bulk of Iran's seagoing military is comprised of a fleet of upward of 200 missile boats, patrol boats, fast-attack boats, and hovercraft.

While dangerous and often packing powerful missiles, these are small warships, often displacing as little as 70, or even just 14 tons of water (for comparison, the nuclear aircraft carrier USS Gerald R. Ford displaces more than 100,000 tons of water).

In short, they're threats, but threats too small to waste a million-dollar Harpoon or Tomahawk missile on. What's needed is something smaller and cheaper, capable of tracking multiple small boats as they maneuver erratically to swarm a warship -- and defeat those threats. That's where Hellfire comes in.

Enter the Hellfire

Last week, the U.S. Navy released a report on test firings of a modified Lockheed Martin (NYSE:LMT) Longbow Hellfire missile (the "Longbow" part refers to its advanced fire-control radar). Military watcher DefenseUpdate.com says the missile is designed specifically to take on the threat of Iranian fast-attack boats. The Navy plans to use these Hellfires in Surface-to-Surface Missile Modules (SSMM) aboard Littoral Combat Ships (LCS) expected to encounter small-boat threats.

Each Hellfire has a five-mile range, and will be self-guiding (i.e., "fire-and-forget"). Once a threat is detected by shipboard or airborne radars, a Hellfire can be launched to destroy the target. In demonstration of this, the Navy's test firings at a series of eight targets maneuvering as small, fast-attack boats saw seven of the eight targets destroyed. The one miss, says the Navy, was "not related to the missile's capability."

As part of the demonstration, the Navy conducted one rapid-fire test in which three targets "conducting serpentine maneuvers" were blown out of the water, one-two-three.

How Hellfire fits in with LCS

Designed to pack 24 Hellfire missiles into a plug-and-play package that can be quickly added to any LCS going to sea, the SSMM will add another layer of defense to a warship already packing a 57mm automatic cannon, and longer-range Raytheon (NYSE:RTN) SeaRAM missiles.

What it means to investors

Speaking of Raytheon missiles, if last week's Navy news was bad news for anyone, it was Raytheon. While the Navy was pretty impressed with the performance of Lockheed Martin's Hellfire, you see, it chose that missile instead of testing Raytheon's competing product, the small Griffin IIB.

Raytheon, as we reported last year, has been developing Griffin as its anti-small-boat solution for the Navy's Cyclone-class Coastal Patrol boats and LCSes. Having a stated range of three miles, and a small warhead atop a 43-inch-long body, Griffin is designed specifically to defeat small, close-in threats -- just like Lockheed's modified Hellfire is.

Unfortunately for Raytheon, the Navy says the deciding factor in choosing Lockheed Martin's Hellfire over the Griffin is the Hellfire's ability to target and destroy multiple targets simultaneously -- important when a warship is being attacked by a "swarm" of fast-attack speedboats. The fact that the Hellfire's five-mile range is nearly twice the range of the Griffin was presumably another mark in Lockheed Martin's favor.

In any case, the upshot of all of this is that if the Navy proceeds with plans to arm its LCS fleet (ultimately expected to number 52 warships, including the new frigate variant of LCS), times 24 Hellfires each, that's a 1,248-missile revenue opportunity ($64 million initially) that will now go to Lockheed, and not to Raytheon.

Longbow will be in the Navy's arsenal by late 2017.