Lockheed Martin Corporation (LMT) will sell 24 F-16 fighter aircraft to Egypt for more than $3.2 billion. The U.S. and Egyptian governments have signed the agreement, which would upgrade Egypt’s existing F-16 fleet.

Lockheed Martin’s F-16s are powered by the General Electric Company’s (GE) F110-GE-129 engine. The F-16 jet fighter aircraft was originally developed by General Dynamics Corporation (GD) in 1976. However, in 1993, General Dynamics sold its aircraft manufacturing business to Lockheed Martin.

Lockheed Martin’s F-16s have witnessed lower sales volumes in recent times, affecting the performance of its Aeronautics segment. In recent times, Lockheed Martin’s F-22 Raptor program was also cancelled. However, higher volumes from the F-35 program salvaged the performance of the segment.

Lockheed Martin remains a key player in the defense industry catering to the U.S. Government, foreign governments and other commercial buyers. Lockheed’s traditional defense focus appears strong, with increasing interest from domestic and international customers. In addition, management intends to explore strong business opportunities beyond the traditional defense market, specifically in the areas of civil, governmental and commercial space businesses. The company mainly competes with Boeing Company (BA), and Northrop Grumman Corporation (NOC).

Shares of Lockheed Martin rose 15 cents to $68.70 on Wednesday. Going forward, we are bullish on the company due to significant upside potential based on strong defense outlays, above-industry average return-on-invested-capital and expanding product lines. This would be partially offset by risks related to key projects execution, fate of high cost platform programs and order cancellations. Thus we reiterate our market Neutral recommendation on the shares.

Zacks Investment Research

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