South Korea recently hinted that it would purchase Lockheed Martin's (LMT) F-35 in a multi-billion dollar deal early next year. The country's defense ministry announced that it would place an order for 40 fighter aircraft with stealth capabilities. Though the ministry did not explicitly name the F-35, the stealth requirement leaves only this aircraft among other contenders for the deal.
We figure this order from South Korea will strengthen the already strong international interest in the F-35 program, thereby helping Lockheed to partially offset the negative impact from declining U.S. defense spending on its sales. Additionally, this order will help Lockheed lower the per unit price of the F-35, thereby saving several hundreds of millions of dollars for the U.S. military.
We currently have a stock price estimate of $120 for Lockheed Martin, around 15% below its current market price.
Rising International Orders For The F-35 Help Lockheed Offset Government Austerity
For Lockheed Martin, the South Korean order will help offset the impact from declining defense spending from the U.S. government. The company currently anticipates its top line to fall to around $45 billion in 2013, from $47.2 billion last year, primarily due to defense spending restrictions imposed through the Budget Controls Act of 2011 and sequestration, which came into effect from March 1 earlier this year. [1] Additionally, in its last earnings release, the company announced that its top line will likely continue to contract in 2014 due to the government's defense budget cuts. [2]