Defense contracting giant Lockheed Martin (NYSE:LMT) builds both of the world's most powerful combat fighter jets, the F-22 Raptor and the F-35 Lightning II. But in the race to build unmanned aircraft, Lockheed has been a bit of a laggard.
Rival contractors Boeing (NYSE:BA), Textron (NYSE:TXT), and Northrop Grumman (NYSE:NOC) have enjoyed great success with their ScanEagle, Shadow, and Global Hawk drone aircraft, respectively. Yet, Lockheed to date hasn't developed a single unmanned aerial vehicle, or UAV, that has won significant sales success with the military. Rather, Lockheed's main claim to fame in the drone space has been its RQ-170 Sentinel -- and that aircraft is most famous for getting hacked and captured by Iran!
But all that could soon change following a recent announcement from Lockheed.
Lockheed, meet AeroVironment. AeroVironment... Lockheed.
On Thursday, Lockheed announced it had signed a "memorandum of understanding" with one of the leading players in the UAV space. AeroVironment (NASDAQ:AVAV) is the company behind such well-known small UAVs as the Raven and Puma. It's also the company that developed the popular Switchblade guided-missile/UAV hybrid, as well as the Nano Hummingbird -- a small, aerodynamic UAV shaped like a real hummingbird.
Initially, the companies say they will team up so that Lockheed can assist AeroVironment with its one sizable UAV, the high-altitude, long-endurance Global Observer drone. Farther out, though, the companies don't rule out jointly pursuing other projects in the UAV space.
What it means to you
For shareholders of AeroVironment, this is big news -- and a big reason why AeroVironment shares rose 8% in the two days following Lockheed's announcement. As a small defense contractor with barely $210 million in annual revenue, AeroVironment is highly sensitive to small blips in defense spending patterns. Already, cuts in Pentagon budgeting have analysts, quoted on Yahoo! Finance, taking down the company's projected growth rate from 20% just a few months ago to just 14% today. A tie-up with a larger, more stable defense contractor like Lockheed Martin could be a real boon to AeroVironment.
On the other side of the coin, by joining forces with a recognized success story in the field of flying robots, Lockheed bolsters its own deficient exposure to the UAV sector. Farther down the road, Lockheed Martin could conceivably decide to buy AeroVironment -- with its $660 million market cap, it would be a small meal for Lockheed -- and give its own single-digit-growth rate a nice boost in the process.
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Rich Smith has no position in any stocks mentioned. The Motley Fool recommends AeroVironment. The Motley Fool owns shares of Lockheed Martin, Northrop Grumman, and Textron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.