The U.S. has fired a lot of missiles lately, leaving the Defense Department motivated to quickly replace and grow its missile stocks.
The Army on Wednesday awarded Lockheed Martin a $54 billion, seven-year contract for Patriot missiles. It's a big deal for the defense company: Lockheed's missile and fire control business generated $4.1 billion in second-quarter sales, up from $3.4 billion a year ago.
Lockheed's backlog ended the second quarter at about $230 billion.
"When you add the $54 billion dollars in this contract modification, you're pushing $300 billion dollars of backlog for the company," said CEO Jim Taiclet on Fox Business.
Lockheed is tripling production of its PAC-3 missiles.
"We're actually going to be deploying and developing again with our government partners a lower-cost Patriot missile that we call PAC-3 ACE, which will be about half the cost, do about two-thirds of the mission set," said Taiclet. That helps address the problem of shooting down low-cost drones with high-cost missiles. The CEO added in his appearance that the company can innovate and ramp up production at the same time.
Vertical Research Partners analyst Rob Stallard called it a "mega" contract in a Thursday note. Jefferies analyst Sheila Kahyaoglu wrote it could be worth an incremental $4 in earnings per share by 2030. (Lockheed is expected to make about $30 a share this year and $40 by 2030, according to FactSet.)
It's all good news. Lockheed stock was up marginally in early trading, while S&P 500 and Dow Jones Industrial Average futures were up 0.6% and 0.4%, respectively.
Lockheed stock might not be up more because shares have already gained 12% over the past month, coming into Thursday trading, partly due to increased missile business. The Defense Department has been signing a number of deals up and down the missile value chain, all designed to boost U.S. capacity to produce the weapons. Those deals are benefiting companies such as RTX and L3Harris Technologies.
Recent gains still leave Lockheed shares down 10% over the past six months. Defense stocks have been weak since fighting broke out in Iran, with investors worried that military spending might have peaked.
But the latest missile deals show there are pockets of growth ahead. How investors treat that growth remains to be seen.
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