Lockheed Martin Gobbles Up Aerojet Rocketdyne

Lockheed has been seeking opportunities to “bring in the technologies faster into the company that we think are going to be crucial for the future,” CEO JimTaiclet said during its October earnings call. “So we plan to be active, but we also plan to be very, very prudent.”

On Sunday, defense behemoth Lockheed Martin announced its purchase of rocket maker Aerojet Rocketdyne for the equivalent of $56 in cash per share. The deal will strengthen Lockheed’s [$LMT] space portfolio in a massive way. Investors, however, will miss out on yet another space-investing pure play.

In total, the deal value is about a 33% premium to Friday’s close. At $56 a share, Aerojet [$AJRD] stock would be up about 23% YTD, better than comparable gains of the S&P 500 and the Dow. Aerojet produces rocket engines that can propel space launch systems, defense systems, and hypersonic travel. About 35% of Aerojet’s sales are generated from Lockheed, so the deal, in some ways, amounts to Lockheed buying a key supplier.

Approximately 35% of Aerojet sales come from the U.S. government and Raytheon Technologies [$RTX]. Part of those government sales is to NASA for components of a new space launch operation that will take cargo and astronauts to Mars in the future. The Boeing 737 MAX is Back in Business

Aerojet rose 0.5% to $42.04 Friday, giving the El Segundo, California-based company a market value of $3.25 billion. Lockheed climbed 1% to $356.03 for a market value of about $100 billion.

Space has captured the imagination of investors lately as reusable rocket technology drops launch costs significantly. That is enabling new space-based business models. SpaceX, for instance, is planning to offer space based Wi-Fi. Stable Road Acquisition [$SRAC] is merging with Momentus, which plans reusable transport equipment which stays in orbit. Momentus’ equipment can also take cargo and satellites to higher orbits, even the moon.

“This transaction enhances Lockheed Martin’s support of critical U.S. and allied security missions and retains national leadership in space and hypersonic technology.” said Lockheed CEO James Taiclet in the company’s news release. “We look forward to welcoming their talented team and expanding Lockheed Martin’s position as the leading provider of 21st century warfare solutions.”

This is the largest deal tackled by Taiclet, who took over for Marillyn Hewson in this past summer. The deal values the Aerojet enterprise at roughly 18 times estimated 2021 EBITDA, where Lockheed trades at roughly 10 times estimated 2021 EBITDA. The deal values Aerojet stock for about $4.4 billion, a fraction of Lockheed’s $100 billion market capitalization.

Aerojet’s stock is trading at 25 times expected earnings, compared with 16 times for Lockheed. Aerojet’s shares have fallen 7.9% this year and Lockheed dropped 8.6%, both underperforming the S&P 500 Index, which climbed 15%.

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