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Citi Sees 'Green Shoot' In Army Budget

Citi Sees 'Green Shoot' In Army Budget
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The Army is about to announce the winner of the first tranche of the Joint Light Tactical Vehicle, or JLTV, program. According to Citi's Timothy Theinhe, the results might have a significant effect on the winner.

Theinhe notes the winner could be decided by the end of next month. The JLTV, which was designed to replace the Humvee, could be worth about $10b over 8 years and "potentially $30b over ~30 years for industry participants."

The JLTV program had budgetary support at "the top levels of military leadership," Thein stated, while adding that among the potential winners were privately-owned AMG, Oshkosh Corporation (NYSE: OSK) and Lockheed Martin Corporation (NYSE: LMT).

AMG was the incumbent provider of the Humvee. Oshkosh provided the M-ATV vehicle for the Iraq and Afghanistan wars. Lockheed was the "800-pound defense gorilla better known for its aircraft." Thein added that each of these companies brought "unique offerings and capabilities," and it was "pretty easy from the outside to understand how each might win."

In the report Citi noted, "Clearly, given the relative size of the competitors, a win for Oshkosh and AMG would have a far greater financial impact than for Lockheed. By our calculation, the NPV of the program could be worth ~$5/share to OSK, or ~120% of our projected EPS in 2017 vs. $1.30 for LMT, or ~10% of estimated 2017 earnings."

Thein said that Oshkosh was the "favorite" in view of its "recent experience producing M-ATVs," which appeared to be "a close cousin" of the JLTV. "As such, we'd expect a more pronounced stock move for OSK than for LMT should one of them actually win the competition," he added.

Citi maintained a Buy rating and a price target of $232 for Lockheed Martin, while upgrading the rating on Oshkosh from Neutral to Buy and rating the price target from $40 to $48.

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Apr 2018Morgan StanleyMaintainsOverweightOverweight
Mar 2018BarclaysInitiates Coverage OnEqual-Weight
Feb 2018Morgan StanleyMaintainsOverweightOverweight

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