LMT Beurre Part Deux

LMT Beurre Part Deux

(Part Un Publié ici)


Closing price 10/25/16 – $249.26 +$17.10 (+7.37%)

For Speculative Accounts Only, 1/20/17 $225 out of the money puts selling for $1.80.

Lockheed Martin Corp (NYSE – LMT), the Pentagon’s No. 1 weapons supplier, said a retroactive fix for insulation problems in the fuel tanks and lines of F-35 jets already in production caused deliveries to be “light” this quarter.

Also, a negative technical indicator is that the volume on yesterday’s jump did NOT exceed 3 Month Average Volume.

F-35: Lockheed’s upbeat outlook rests on getting contracts for the next two batches of F-35 production, known as lots 9 and 10, and has been paying out of pocket for months while contracts are negotiated with the Pentagon to keep up the production schedule.

To help cut costs, the Pentagon has been adamant that lots 9 and 10 should be negotiated together under one $14 billion contract that includes 140 jets. But the Wall Street Journal reported Tuesday that the Pentagon may award a contract for just lot 9, which includes more than 63 planes, as talks over pricing have dragged on well past expectations.

Stock: Shares jumped 7.4% to finish at 249.26 on the stock market today, gapping above its 200-day and 50-day moving averages, as Lockheed also raised its dividend 10% to $1.82 and added $3 billion to its share buyback program, according to IBD.  The buyback and dividend indicate LMT does not have any future contracts to invest in to support its 20.76 P/E.

The OV-10 Bronco’s primary responsibility was to deploy during counterinsurgency operations in the 1960s. Initially retired from service in 1995, it has made multiple appearances throughout the 21st century.

Defense Media Networks contributor, Robert F. Dorr, stated the OV-10 left retirement status to fly operations under the Combat Dragon program established by then-Combatant Commander, Gen. Stanley McChrystal. The Bronco effectively completed its combat missions under McChrystal’s leadership that his successor, Gen. James Mattis, followed suit. Mattis reported to the Senate Armed Services Committee that the Bronco is a “robust, complex aircraft like an F-15E Strike Eagle to support troops patrolling rural villages.”

The F-35 Fighter

The fifth generation strike fighter and America’s largest acquisition program to date is supposed to be primary asset to defend air superiority and support combat missions overseas. With advanced systems such as the low observable technology, helmet mounted display, and distributed aperture system, the F-35 was dubbed as the jet of the 21st century. However, such capabilities do not seem to support all objectives of war, especially conquering the war on ISIS.

[Related: Is the F-35 Ready to Defeat ISIS?]

Ryan Brown of CNN Politics discussed that the reinstatement of the Broncos was a trial phase to conclude whether the aircraft could better support operations better than a technologically advanced strike fighter such as the F-35. The fighter jet was deemed completely too fast to provide close air support and it would cost 10 times more than the Bronco just to complete missions. Criticism over the continued issues with the fighter as well as major expense provided an alternative to reinstate the OV-10 for an investigative period to defeat ISIS.

The above option contracts depend upon whether a hawk or dove is elected into office, that’s why I’m extending the expiration to 1/20/2017 to reduce downside risks.

Please consider subscribing to the blog and receive a complimentary spreadsheet with ratio analysis of the of 8 largest Defense contractors.

Leave a Reply

Your email address will not be published. Required fields are marked *