Lockheed Sells EIG Business - Analyst Blog

Lockheed Martin Corporation (LMT) has successfully sold off its Enterprise Integration Group (EIG) business to Veritas Capital. The company received $815 million in cash for the sale, which was announced on June 2, 2010.

Lockheed's decision to dispose EIG was based on the U.S. Government's apprehension regarding the perceived organizational conflicts of interest. Divesting the business is intended to reduce the scope of such perception and benefit customers, shareholders and employees.

EIG provides system engineering services, architecture, and integration services and support to a broad range of government customers.

Based in Bethesda, Maryland, Lockheed Martin is a global security company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The company's major customers include the U.S. government, foreign governments, and other commercial buyers. The company employs about 133,000 people worldwide.

The world's largest U.S. defense contractor, Lockheed, reported disappointing numbers in the most recent quarter, with EPS of $1.57 missing the Zacks Consensus Estimate and lagging the year-ago quarterly numbers.

Looking ahead, Lockheed expects its fiscal 2010 earnings to come in at $6.75 - $6.95 with revenues in the range of $44.9 billion $45.9 billion. The Zacks Consensus earnings estimate for the fourth quarter, fiscal 2010 and fiscal 2011 are $2.13, $7.30 and $6.56, respectively.

Lockheed continues to benefit from strong defense spending on a number of its platform programs like the F-35 Lightning II Joint Strike Fighter, C-130 Hercules transport aircraft, the Patriot Advanced Capability-3 (PAC-3), and many others.

However, the threat of cutbacks in defense budget may largely drive down Lockheed's topline as a major portion of the company's business comes from the U.S. government. Additionally, a receding order backlog, headwinds in margins, execution risk of major programs, cost over-runs, higher pension liability as well as risk regarding retrenchment cost recovery, are other factors plaguing the stocks outlook.

We do not expect the situation to improve significantly in the near future and therefore, rate the stock ‘Underperform'. Lockheed Martin currently has a Zacks #4 Rank (short term Sell). We prefer other names in the space, including General Dynamics Corp. (GD) and The Boeing Company (BA), which hold a Zacks #3 Rank (Hold).

 
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