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Lockheed Martin's Strong Innovation Will Carry Stock Higher
Posted by: InvestmentUnderground (IP Logged)
Date: April 19, 2012 02:08PM
Although aerospace engineering and defense companies such as Lockheed Martin (LMT) may not have a direct impact upon the lives of ordinary citizens, the amount of work the company does behind the scenes is incredible. The scale of its defense systems and technological developments is unprecedented, and its target market ranges from government agencies to private buyers. Due to the extent of the company's focus, it is unsurprising that it needs to keep its shareholders happy in order to continue developing and increasing its capabilities and technologies. So how is Lockheed Martin succeeding in maintaining a reasonable stock price in order to keep shareholders happy?
Currently, Lockheed Martin’s stock is trading at around $91. This figure is impressive enough as it is, but becomes even more so when compared to figures from the past year – last April, stock was trading at $81; at the start of this year it was the same; and last month (March) it had risen to $89. As a result, it would appear that Lockheed Martin is enjoying a period of steady and relatively consistent growth.
Lockheed Martin is not alone: Its major competitor, Boeing (BA), has seen a slow but steady increase in stock price from $74 to around $75 in the past year, while General Dynamics (GD) has seen a marginal increase from $73 to around $74 over the same period. Not all of Lockheed Martin’s competitors are faring so well, though – AeroVironment (AVAV) has seen a decrease in stock value from $30 to around $27 since the start of last April, while BAE Systems (BAESY.PK) has decreased in value by around $2.
So what is Lockheed Martin doing that many of its competitors are failing to do? And will it continue to perform in this way and hold its position as a market leader?
One aspect of Lockheed Martin which continues to please both customers and shareholders is its constant development of software, weaponry and transport. Rather than becoming complacent with its position as a market leader, Lockheed Martin instead continues to develop and re-develop its products based on test results and customer feedback. Recently, Lockheed Martin revealed the planning stages of a lighter and more cost-efficient model of its Joint Light Tactical Vehicle (JLTV.) Developed with BAE Systems, the new design of the JLTV will be “hundreds of pounds” lighter than its predecessor, after significant testing suggested that the vehicle would perform better if it were lighter.
Additionally, Lockheed Martin has responded to customer demand by using less expensive and more locally available metals and other materials in the manufacture of the JLTV. This ability to keep its customers happy, as well as portray itself as a dynamic and forward-thinking company, has contributed to Lockheed Martin’s recent growth.
Lockheed Martin is branching out into new areas and reaching new customers, as demonstrated recently with its production and release of an educational software. The simulation software, known as Prepar3D, was designed to help students with the acquisition, development and application of science, technology, engineering and math (STEM) skills, and also allows students to collaborate with others via the software to solve problems. Lockheed Martin claims that the software is so effective because its simulation of real-life scenarios allows for the application of skills in a way that is as close as possible to how the skills would be used in reality. The software retails at $49.95, and is an example of how Lockheed Martin is catering to different types of markets and adapting as technology changes the way the world functions.
Lockheed Martin’s various engineering and software developments are paying off in very obvious ways, as its recent receipt of the Aviation Week Laureate Award shows. Lockheed Martin won the award jointly with the U.S Army and the Aerospace Corporation for the development and testing of a program which enabled the world’s first Advanced Extremely High Frequency satellite to operate in sync with the earth’s rotation. Not only is the award itself and incredible achievement, but it also increases the awareness of the public and of potential customers about Lockheed Martin and its work.
Another testament to Lockheed Martin’s work came recently with its acquisition of a continuation contract from the Missile Defense Agency. The contract, worth $66 million, allows Lockheed Martin to maintain its development of a Terminal High Altitude Area Defense (THAAD) system. Although Lockheed Martin had completed the initial development of the system, the continuation contract allows the upgrade of technologies and software which make the system function, once again demonstrating that Lockheed Martin is a company that prides itself on cutting-edge products.
Unfortunately, not all of Lockheed Martin’s recent endeavors have been positive ones. In fact, it made headlines at the end of March because of a conflict with the U.S government, one of its biggest customers. The government accused Lockheed Martin of using a subcontractor who mischarged the company for its tools, and claims that Lockheed Martin passed on this pricing error to the government. As a result, Lockheed Martin is being made to pay $15.9 million to the government in compensation.
Luckily for Lockheed Martin’s stockholders, very few negative stories such as this are around at the moment, so minimal damage is being done to Lockheed Martin’s reputation – or its finances. In fact, Lockheed Martin looks set to be the strongest company of its type on the market for a long time. Because its major customer is the U.S. government, Lockheed Martin is potentially guaranteed business for a number of years, as America continues to be the highest national spender on defense.
As far as I’m concerned, the recommended action for Lockheed Martin should be: more of the same! Not only is Lockheed Martin capable of keeping its existing customers happy, it’s also proving able to expand its consumer base and to establish new and lasting relationships with different types of customers.
Stocks Discussed: LMT, BA, DG, AVAV,