Lockheed Martin Corporation (LMT), Raytheon Company (RTN): Invest in a Reducing Defense Budget?

Boeing’s military aircraft division also cited strong demand for its helicopters and the V-22 tiltrotor. In addition, the company said that it could sell 100 to 200 of its KC-46 tankers to international customers in coming years.

To keep up with its rivals, Lockheed is currently working in 70 countries, with a major focus in Britain, Canada, and Australia. It plans to increase focus on countries like Japan, India, Saudi Arabia, and the United Arab Emirates. The company received two contracts with a combined value of $51 million to provide military systems to the countries of Jordan and Finland.  The company expects a huge opportunity for its F-35 fighter jet from Japan and Israel.

At the Paris Air show, Lockheed signed a contract with Mitsubishi to work on the final assembly and checkout plant for the F-35 strike fighters in Japan. Lockheed didn’t give the details regarding the value of that deal, but a similar contract signed with Italy to assemble F-35 jets carries an estimated value of 800 million euros, or $1.1 billion. This large number of contracts could give Lockheed good income in the future.

Liquidity problems

Lockheed carries a far larger amount of debt than its rivals. Its total debt-to-equity ratio is 884, compared to 54 and 125 for Raytheon Company (NYSE:RTN) and Boeing, respectively. The high debt may make future financing difficult for Lockheed. In the last few quarters, cash generated from the company’s operating activities has also decreased; in the second quarter of 2013, it was $623 million, down from $845 million a year earlier. The company needs to reduce its debt figure to avoid liquidity problems in the future.

Bottom line

Lockheed may suffer in the short term due to federal spending cuts, but its long-term future is bright. Overseas expansion will provide a good source of income, given rising demand for aircraft in the international market. In my opinion, initiating a long position in Lockheed will give investors a healthy return.

The article Should You Invest In This Aerospace Contractor? originally appeared on Fool.com and is written by Adnan Riaz.

Adnan Riaz has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin and Raytheon Company.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.