Lockheed Martin Gives Thumbs Up to 1 Tiny Space Stock

Lockheed Martin Gives Thumbs Up to 1 Tiny Space Stock

Valued at $110 billion and doing nearly $70 billion in annual business, Lockheed Martin (NYSE: LMT) is the world's biggest defense company. It's also a major player in space.

Lockheed Martin builds the Orion spacecraft that will one day carry NASA astronauts (back) to the moon, making it an integral part of NASA's Project Artemis. Lockheed owns half of United Launch Alliance, still the preferred provider of satellite launches to the U.S. government (despite SpaceX's best efforts). In addition to its own efforts in space, Lockheed is also a sort of incubator for the businesses of other, smaller space companies.

Lockheed was one of the early investors in Rocket Lab USA, for example, a space start-up I own a piece of. Through its Lockheed Martin Ventures arm, Lockheed has a stake in small rocket company ABL Space Systems, satellite company Hawkeye 360, and satellite manufacturer Terran Orbital, according to data from S&P Global Market Intelligence. It's also a customer of some of these companies. Last month, for example, Terran Orbital stated that it has contracts to build more than 100 satellites for Lockheed Martin.

And I have a strong hunch we just figured out who's going to help launch those satellites.

One space company that Lockheed Martin doesn't own (yet)

Earlier this month, we learned that Lockheed Martin has signed space start-up Firefly Aerospace to a contract to launch at least 15, and perhaps as many as 25, Alpha rockets carrying payloads for the space giant.

Alpha is Firefly's first successful commercial rocket, having conducted four orbital launches already, with four more scheduled to take place later this year. As Firefly announced on June 5, the 15 firm and 10 optional launches it will conduct for Lockheed will take place between now and 2029, meaning Firefly could potentially be conducting more launches per year for this one single customer than it's ever launched before, in its history.

At one metric ton in payload capacity, Firefly's Alpha classes as a small rocket. Although three times larger than Rocket Lab's Electron, Alpha has only 4% the payload capacity of ULA's heavy lift Vulcan Centaur (half-owned by Lockheed). That makes it less than useful for launching giant payloads such as space telescopes, for example -- but perhaps perfectly sized to launch smaller satellites such as the ones Terran Orbital is producing for Lockheed.

What it means for space investors

Neither Lockheed nor Firefly have confirmed precisely that Firefly will be launching Terran Orbital satellites for Lockheed -- or indeed, said anything yet about the payloads. However, an earlier launch (FLTA004, which suffered an anomaly) attempted to place a Terran Orbital satellite into orbit for Lockheed in December 2023 -- which does seem to suggest that these rockets would be the right size and type for Lockheed to use when attempting to place future Terran Orbital satellites in orbit.

Assuming I'm correct on these surmises, this means that Lockheed is serving as a sort of intermediary between Terran Orbital and Firefly, matching up subcontracted satellites with subcontracted rockets to launch them. With Lockheed Martin as the indispensable party to both subcontractors, an investor can probably safely assume that it will be earning respectable profit margins on this business. And seeing as Lockheed Martin's space division profit margins have sunk from about 10.5% to less than 9% over the past five years, that would be a positive development.

At the same time, Lockheed's patronage is obviously good news for Terran Orbital, helping keep the company afloat even as it continues losing money. (Terran reported more than $150 million in losses last year, a sum nearly equal to the company's entire market capitalization.)

For Firefly, the news is even better. Media reports indicate that Lockheed may be paying Firefly as much as $15 million per launch. At a cadence of five launches per year, that implies something on the order of $75 million in annual revenue that Firefly might get out of this contract -- nearly half its annual revenues, according to data from S&P Global. And over the course of the five-year, 25-rockets contract, Firefly could end up booking sales of $375 million.

For a young space start-up still raising cash to finance an ambitious slate of projects, from orbital space tugs to lunar landers to two brand new rocket designs, that sweet, sweet Lockheed Martin cash should come in handy -- and help tide Firefly over until it can IPO.

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Rich Smith has positions in Rocket Lab USA. The Motley Fool recommends Lockheed Martin and Rocket Lab USA. The Motley Fool has a disclosure policy.