From an investment perspective, Lockheed Martin Corp. (NYSE: LMT) stock is a long-term buy-and-hold, largely because of the F-35 program.
The F-35, the next generation of fighter crafts to replace the current fleet, is a 56-year program. It will cost a total of $400 billion for the United States to procure 2,400 of these multi-role combat jets, and another trillion to service the fleet once they're rolled out. The $1.4 trillion price tag is daunting, but over 56 years that averages out to about $25 billion a year spread across the slew of contractors building this jet and its components - with the lion's share going to Lockheed.
Foreign governments will order another 600.
A lot of fair criticisms are leveled at the F-35. There have been cost overruns, software problems, and delays. But none of that is new to the federal contracting game and should come as no surprise for a jet that seeks to do everything for everyone.
"You're trying to use this kind of one-shoe-fits-all mentality," Money Morning Executive Editor Bill Patalon said. "You're trying to make it the main aircraft for multiple services - the Air Force, the Navy, the Marines - each of these folks has different requirements - dramatically different."
Here's why this discussion over the F-35 likely won't make a dent in the LMT stock price long term...
Is the F-35 Worth It?
The LMT stock price has been rather sensitive to any news items related to the F-35 this year.
Just look at the beginning of 2015.
Near the end of 2014, it was reported that software troubles would render the F-35's guns inoperable by the time the plane sees combat. On the first day of the first full week of 2015 trading, the Lockheed Martin stock price fell 2.1%.
But days after, a spokesman from the joint program office fired back. The news stories were "nameless/sourceless/baseless," he wrote in an e-mail. Lockheed Martin stock climbed as high as 3.4% to $195.68 later in January.
Investors may harbor doubts with the F-35 because Lockheed already saw one of its jet fighter programs nixed by Congress when it became clear that Lockheed couldn't deliver the jets at the expected price tag. This was the case with the F-22.
It cost $350 million to procure each aircraft - the most expensive aircraft in procurement history.
The Pentagon originally planned to purchase 750 planes for $25 billion. But design flaws pushed the price up and delayed production. The U.S. government ended up purchasing 187 at $66.7 billion.
The senate voted to kill the F-22 program on July 21, 2009. The Lockheed Martin stock price fell 8.5% on the day.
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But Congress doesn't have the luxury of killing the F-35...
U.S. Secretary of Defense Robert Gates justified cutting the F-22 program because the U.S. government still had the F-35 program to fall back on. There's nothing to fall back on if the F-35 is cut.
Not to mention the political hit any renegade, cost-cutting congressman or congresswoman will have to take if they vote cut the program. Lockheed's PR team has made tremendous effort to tout the program's job creation potential.
So, is the F-35 worth it? That's an appropriate debate to have as this program goes operational over the next couple years. But the fact remains that regardless of cost overruns or delays, Lockheed Martin is going to see a steady stream of government checks.
And that's going to only help the LMT stock price for a long time.
Jim Bach is an Associate Editor at Money Morning. You can follow him on Twitter @JimBach22.
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