As more government funds are directed towards defence initiatives the world over, aerospace corporations are leveraged to significant industry growth. Few names are better known than Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC). With the growing influence of technology in this segment, these companies are increasingly looking like growth stocks.
Lockheed Martin: the US contractor of choice servicing Australia’s military
Today worth US$111bn, Lockheed Martin is the world’s largest defence contractor. With close ties to the US government, it is the leading US federal contractor. LMT also works with other countries like Australia, to which it recently sent new F35 fighter jets. With 100,000 employees globally and over US$50bn in revenue, it marks a significant rise for what was previously two separate entities.
This includes Lockheed Corporation, developer of the C-130 Hercules military aircraft, and Martin Marietta, known for its missile developments and the Mars Polar Lander. Their merger in 1995 paved the way for a new era of security and technology developments, with current business separated into four divisions - aeronautics; space systems; rotary and mission systems; plus missiles and fire control. In the last seven years LMT stock has jumped more than 300%.
Northrop Grumman: from times of war to the lunar mission and beyond
Until their merger in 1994, both Northrop Corporation and Grumman Corporation were prominent military and civilian aircraft manufacturers. The two companies were responsible for some of the most well-known aviation developments, including Northrop’s F-5 fighter jets, and Grumman’s role as principal contractor for the Apollo Lunar Module.
Nowadays, the merged entity operates across four key divisions: aerospace systems, innovation systems; technology services; and mission systems. With over 85,000 employees and US$30bn in annual revenue, Northrop Grumman has become a mainstay of the US economy. As a result, it’s no surprise it is now valued in excess of US$60bn, with the stock up five-fold since 2013.
Leveraged to a backdrop of investment and unrest
Both Lockheed Martin and Northrop Grumman are vital contractors to uphold the security of the US, not to mention foreign allies as well. They are positioned within their respective markets at the forefront of sophisticated technology development. As defence budgets grow – especially for the US government under President Trump – each company can expect to remain an integral beneficiary of investment.
With tension, hostility and unrest building, this serves as a tailwind for the defence industry. In particular, recent events in the Gulf region – including the drone strike in Saudi Arabia – as well as Chinese territorial disputes and North Korea, mean an ever-growing need for state-of-the-art innovative defence solutions. If any of these conflicts escalate it will translate into growing military requirements and sales growth.
Cutting edge product development
Given their heavily diversified competencies, both Lockheed Martin and Northrop Grumman have multiple revenue streams to drive sustainable growth. Pipeline products look set to act as a catalyst.
For Lockheed Martin’s aeronautics division, the company has secured a US$32m deal to modify and retrofit F-35 supersonic fighter jets. The full F-35 program is LMT’s largest, with the US government targeting inventory of 2,456 aircraft in the years ahead. This is in addition to demand from 11 other foreign governments, including Australia. At June 30 LMT had 341 production aircraft in backlog. Once production ramps up, this is set to contribute strongly to the bottom line.