Lockheed's F-35s could escape budget cuts
The move to protect the jet fighter program from the government's spending reductions will go a long way in supporting the company's earnings.
Eric Fanning, the U.S. Secretary of the Air Force, said, "I expect we'll get flexibility", referring to the next year's budget allocation for these top programs that are seen in line with the government's defense priorities.
This is good news for Lockheed Martin (LMT), the chief contractor for F-35s. The company is depending on the scale up in its production rate in coming years to counter the impact from reduced government defense spending on its smaller defense programs.
United Technologies' (UTX) Pratt & Whitney, which supplies the engines for this fighter jet, and Boeing (BA), which is leading the aerial tanker program, will also welcome this indication that plans to safeguard the government's spending on these programs.
We currently have a stock price estimate of $101 for Lockheed, around 20% below its current market price.
F-35 program is crucial for Lockheed amid lower defense spending
Lockheed Martin receives more than 80% of its sales from the U.S. government, including around 60% from the Department of Defense (DoD). This high dependence makes the defense contractor highly vulnerable to any spending reductions from the government. Since 2011, the U.S. government's defense budget has declined steadily due to the enactment of the Budget Controls Act, which slashed the government's defense spending by around $500 billion over 2011-2021. In March of this year, additional reductions to the government's defense budget were introduced under automatic spending cuts called sequestration.
This austerity has impacted Lockheed significantly, particularly its smaller defense programs in the information technology segment. Reflecting the impact from budget cuts, the company forecasts its top line to lie around $44.5 billion in 2013, down from $47.2 billion last year. The impact from lower U.S. defense spending is also evident on Lockheed's backlog, which declined by nearly 9% in the first six months of 2013 to $75.1 billion at the end of the second quarter.
In light of such an environment, a move that protects the F-35 program -- which constituted 14% of Lockheed's revenues last year -- from the government's spending cuts, will go a long way in supporting the company's earnings.
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President Eisenhower warned us of "the Military Industrial Complex" 50 years or so ago...
Think I was in College at the time....?
isn't this a plane that the airforce and DOD themselves have professed to have been poorly developed and "doesn't work" as well as prior fighter jets? or was that ALSO the F22 joint strike fighter?
so here we go with a continuation of more white collar welfare..........wonderful.......god forbit we actually stop worthless DOD projects (like the Abrams A1 tank) to save the country some cash.
some DOD idiots started this mess 15 years ago and no one has the b a l l s to STOP it today.
Thought I heard or read where India's Air Force or Government was going to buy a group of the F-35s.
We don't need them, and LHM is not delivering on original contract.
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