The U.S. government and Lockheed Martin announced a new joint contract for the production of precision missiles.
As the biggest aerospace and defense company in the world, Bethesda-based Lockheed Martin (LMT) – Get Free Report is also the U.S. government’s largest contractor.
In 2022, it gave the company received $47.2 billion or $6.81% of the $693.2 billion the government spent on all contracts in 2022. These include everything from $1.05 billion toward producing 118 Lot 18 F-35 planes for the air force and marine corps to $431 million for new High Mobility Artillery Rocket Systems (HIMARS) for both the U.S. and foreign allies.
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In February 2023, the U.S. government dropped another $1.1 billion to build hypersonic strike capability into the navy’s existing ships.
The U.S. Government Wants Long-Term Production Of These Missiles
This week, the U.S. government and Lockheed Martin announced a new joint contract for the production of precision missiles for both the U.S. and its allies.
Intended for continued production over several years, the contract cements another $439 million worth of Joint-Air-to-Ground Missiles (JAGM) and HELLFIRE missiles and leaves the potential for up to $4.35 billion to be spent by 2027.
“This contract award, along with last year’s JAGM full-rate production decision, shows the Army’s confidence in our product’s combat effectiveness and defensive capabilities, including its potential for longevity due to the support for increased production,” Joey Drake, who leads program management at Lockheed Martin Missiles and Fire Control, said in a statement.
The contract is meant to ensure steady and continued production of these high-precision missiles amid a “significant increase in international demand” — after Russia’s invasion of Ukraine in February of 2022, multiple international partners have supplied the latter with HIMARS missiles.
On April 4, the Biden Administration committed to a new security package that includes ammunition for the 20 Lockheed Martin HIMARS systems it supplied to Ukraine since the start of the war.
Countries such as Estonia and Poland, which border either mainland Russia or the Russian enclave of Kaliningrad, have also been preemptively buying up HIMARS systems.
“Both JAGM and HELLFIRE’s advanced defensive capabilities provide users with a critical solution that allows them to stay ahead of ready with a competitive edge against potential adversaries,” Drake said. “This contract allows us to keep providing those solutions to our customers for years to come.”
Here’s Why Some Analysts Are Hesitant To Invest Too Much In Defense Stocks
Despite the strong demand for many high-precision weapons that only Lockheed Martin can produce, some analysts have been advising against being too confident around the sustained success of its shares.
Last December, the company released earnings that surpassed expectations with $18.99 billion in fourth-quarter and $66 billion in annual revenue. While the demand for weapons is only expected to rise amid multiple brewing global conflicts and Lockheed delivers consistent results, the entire defense industry can be volatile given its dependence on political actions.
“Just because I prioritize national defense does not mean that Congress will until they have to,” Stephen Guilfoyle wrote for TheStreet’s RealMoney in January 2023. “Your average politician probably does not understand the necessity in taking the lead in hypersonic defense that they would should something terrible happen.”
Guilfoyle added that he would not exit “defense stocks as a group” but instead “adjust exposure.”