Lockheed Martin Corp. 's LMT Aeronautics segment recently secured a modification contract for F-35 jet to support the Israel defense force. Work related to this deal is expected to be over by December 2021.

Details of the Deal

Valued at $148 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Per the terms of the deal, Lockheed Martin will procure Israel-unique weapons certification, modification kits, and electronic warfare analysis in support of the F-35 Lightning II Israel system design and development. This will offer 3F+ fleet to the government of Israel under the Foreign Military Sales (FMS) program.

Majority of the work will be carried out in Orlando, FL; El Segundo, CA; Fort Worth, TX and Nashua, NH. FMS funds will be utilized to finance the task.

A Brief Note on F-35

Lockheed Martin's F-35 Lightning II is a 5th Generation, single-seat, single-engine fighter jet. It offers a combination of advanced stealth as well as fighter speed and agility, fully fused sensor information, network-enabled operations and advanced sustainment.

With Lockheed Martin being the primary partner, the F-35 program has been supported by an international team of leading aerospace majors like Northrop Grumman Corp. NOC , BAE Systems plc BAESY and Pratt & Whitney - an unit of United Technologies UTX .

Our View

Thanks to its diverse state-of-the art defense equipment, Lockheed Martin remains the largest U.S. defense contractor. Notably, the F-35 program continues to be a primary growth driver for the company. Evidently, Lockheed Martin witnessed 12% top-line growth in the fourth quarter for its Aeronautics segment, primarily driven by the F-35 program. The company delivered 66 F-35 aircraft that represents an annual growth of 44% in 2017. Management expects this momentum to continue and the company to deliver approximately 90 jets in 2018, reflecting year-over-year growth of 35%. Over the next few years, Lockheed Martin expects to achieve full-rate production for F-35.

In terms of delivery, till date the company has dispatched more than 265 F-35 jets to the United States and international customers. Production of the F-35 aircraft is expected to continue for many years given the U.S. government's current inventory target of 2,443 aircraft for the Air Force, Marine Corps and Navy.

Apart from its strong demand scenario in the domestic market, the F-35 program enjoys a solid forte in the international front as well. Evidently, Norway received its first three conventional, take-off and landing F-35As, during the fourth quarter of 2017. Moreover in 2017, seven of Lockheed Martin's 11 international customers accepted the F-35 deliveries. This shows the notable demand F-35 enjoys in the international market as well.

According to a report by Reuters, Germany's 85 Tornado jets will go out of service by 2030. In relation to this the country has identified F-35 along with Boeing's F-15 and F/A-18E/F jets as their next best alternatives. If chosen as the ultimate jet for the country, it goes without saying that F-35 program will witness a major surge in its growth.

Currently, the company expects to generate revenues in the range of $50.0-$51.5 billion in 2018. We believe winning such orders, like the latest one, will entitle Lockheed Martin to achieve these targets.

Price Movement

Shares of Lockheed Martin have moved up 38.1% over a year, underperforming the 57.2% rally of the industry it belongs to. This could be because the earlier budget cuts have put pressure on the company's top-line growth.

Zacks Rank

Lockheed Martin sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.