As the debate over America's involvement in the war against ISIS drags on, one country with a direct interest in the outcome of this struggle is stepping up -- and arming up -- to fight ISIS: Jordan.
Last month, as you may have heard, the Kingdom of Jordan responded to ISIS's capture and execution of a Jordanian fighter pilot with a series of 56 airstrikes against the terrorist "caliphate." Jordan didn't stop there, though. In February, the Jordanian military also deployed "thousands" of ground troops to the Iraqi border to help contain the ISIS threat, according to ABC News.
According to the Jordanians, their anti-ISIS troops only took up defensive positions, not moving into Iraq proper. But now, it appears the Jordanians may be preparing to take the fight to ISIS -- offensively.
Earlier this month, the U.S. Defense Security Cooperation Agency notified Congress of a planned weapons sale of some six dozen M31 Unitary Guided Multiple Launch Rocket Systems, or GMLRS, Rocket Pods to Jordan. Each pod contains six rockets. The sale, if approved, will supply Jordan with 432 powerful rockets for its military, each carrying 200 pounds of high explosive.
GPS-guided and capable of striking targets at ranges up to 42 miles distant, GMLRS is an incredibly powerful and accurate weapons system. Its maker, Lockheed Martin (NYSE:LMT), goes so far as to advertise it as providing a "one round, one-kill" capability. The missiles can be launched from either M270A1 Multiple Launch Rocket Systems -- also built by Lockheed -- or M142 High Mobility Artillery Rocket Systems (HIMARS) -- for which Lockheed builds the launchers, BAE Systems the chassis. And now, Jordan will have 432 of them.
Follow the money
Assuming Congress OKs the sale (Hint: Congress has never rejected a DCSA-notified weapons sale. Ever.), the 72 GMLRS pods that Jordan is ordering should produce $192 million in revenues for Lockheed Martin. Factor in the $80 million that Jordan will be paying to acquire a pair of 35-meter armed coastal patrol boats in a separate DSCA notification, and Jordan has already ordered more than a quarter of a billion dollars of U.S. arms during just the past two weeks.
Jordan is not Lockheed's only customer in the anti-ISIS alliance. Less than six months ago, the United Arab Emirates, another U.S. ally in the fight against ISIS, requested permission to spend $900 million on purchases of M31 GMLRS and other rocket pods, plus 12 HIMARS systems to launch them with. There, too, Lockheed Martin is serving as principal contractor.
Now, maybe it's a coincidence that two countries, both combating ISIS, and both of which recently picked up the tempo of their attacks, are now buying the same weapons systems from Lockheed Martin. Or maybe it isn't.
One thing's for sure, though: These are exactly the kinds of sales that investors in Lockheed Martin stock want to see. Not hundred-million-dollar-plus stealth fighter jets that, once bought, won't have to be replaced for as many as 60 years, but rather rocket systems that, by definition, are designed to be bought, fired off, and replaced -- generating repeat sales for Lockheed Martin every time a rocket launcher goes empty.
What it means to investors
From an investor's perspective, the real money in the defense industry is found not in the "guns," but in the "bullets" -- and Lockheed Martin provides a great example of why. Lockheed may own the top-selling fighter jet franchise in the world, and the only operational fifth-generation stealth fighter jets, as well. But when it comes to turning a profit on these products, Lockheed's Aeronautics division earns only 11% operating margins. According to data from S&P Capital IQ, that's worse than the 11.8% operating profit margin earned by Lockheed Martin across all its divisions.
Meanwhile, Lockheed's less-well-known Missiles and Fire Control division, which makes the HIMARS and the M31 GMLRS that Jordan is now buying, earns a profit margin of 17%. That's again half as much as Lockheed's marquee fighter jets business makes.
The moral of this story: When Lockheed Martin sells missiles to Jordan, that's bad news for ISIS. But it's very good news for owners of Lockheed Martin stock.
Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 288 out of more than 75,000 rated members.
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