Lockheed to Acquire Astrotech Unit - Analyst Blog

Aerospace and defense major Lockheed Martin Corporation LMT has inked a deal with Astrotech Corporation to acquire the latter's Astrotech Space Operations (“ASO”) business for an undisclosed amount. The transaction is subject to several approvals. If approved, the deal is expected to be completed in third-quarter 2014.

Titusville, FL-based ASO is a leader in satellite launch preparation services. It provides the necessary support required for spacecraft processing, including pre-launch hardware integration and testing, satellite encapsulation and fueling. The company's launch facilities offer perfect processing areas for a wide range of spacecraft which includes earth observation, complex communications and deep space satellites.

To date, the company has contributed products and services to more than 300 successful spacecraft missions. ASO serves both government as well as commercial customers and has facilities in California and Florida.

Post transaction, the products and services of ASO will be regarded as Lockheed's wholly owned subsidiary and managed by its Space Systems division.

Lockheed continues to expand its product coverage under the satellite division and has completed significant deliveries. On May 22, 2014, the company announced that its Commercial Launch Services will launch the WorldView-3 commercial remote sensing spacecraft and place it in orbit on Aug 13, 2014 for DigitalGlobe.

On May 6, Lockheed had completed the propulsion module for the fourth Space-Based Infrared System Geosynchronous Earth Orbit space vehicle. The latest addition of a satellite launch services provider will enable Lockheed to strengthen its product and service offering under the Space Systems operations besides increasing the customer base.

Lockheed makes strategic acquisitions that boost its product coverage and increase market penetration. In Mar 2014, the company acquired BEONTRA AG, which provides integrated planning and demand forecasting tools for airports. The company also signed several acquisition contracts, including Industrial Defender in Mar 2014 and Amor Group last year.

We see a number of recent deals in the aerospace sector prompted perhaps by shrinking budgets and a need for consolidation in the industry. In Apr 2014, Alliant Techsystems Inc. ATK announced that it will form a new entity, combining its Aerospace and Defense Groups with another firm Orbital Sciences Corp. ORB. This initiative will enable Alliant Techsystems to focus more on space missions.

Lockheed maintains a strong liquidity position backed by an efficient cash generation capacity. As of Mar 31, 2014, the company's cash balance was around $3.26 billion, up from roughly $2.62 billion as of Dec 31, 2013. In the first three months of 2014, operating cash flow edged up 0.7% to $2.1 billion from the prior-year level. A strong financial position enables Lockheed's systematic acquisition program.

Lockheed currently has a Zacks Rank #3 (Hold). However, a better-ranked stock in the aerospace and defense sector is Embraer SA ERJ, which carries a Zacks Rank #1 (Strong Buy).

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