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Boeing Wins $679M Navy Deal to Procure 12 Combat Aircraft

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Aircraft major The Boeing Company (BA - Free Report) clinched a contract for the procurement of seven EA-18G and five F/A 18E aircraft. Per the terms of the agreement, the company will also obtain airborne electronic attack kits associated with the EA-18G jets.

Valued at $678.7 million, this contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Majority of the work related to this deal will be executed in El Segundo, CA; St. Louis, MO; Bethpage, NY; and the rest at various other locations across the U.S.

Boeing will utilize fiscal 2016 aircraft procurement (Navy) funds to accomplish this contract. The expected completion date for this deal is Feb 2019.

A Brief Note on EA-18G & F/A 18E Jets

Boeing’s EA-18G Growler is the most advanced airborne electronic attack (AEA) platform. It is a variant of the combat-proven F/A-18F Super Hornet and can operate from either an aircraft carrier or from land bases. The Growler aircraft has 11 weapon stations for carrying electronic mission systems and arms and provides tactical jamming and electronic protection to U.S. military forces and allies around the world.

On the other hand, Boeing’s F/A-18 Super Hornet – a twin-engine, supersonic, all weather multirole fighter jet – is the U.S. Navy’s primary strike and air superiority aircraft. It is capable of landing and taking off from an aircraft carrier. F/A 18E is a single-seat variant of the Super Hornet, which is about 25% larger than its predecessor – the F/A-18C/D – but contains 42% lesser structural parts.

Our View

Being is one of the largest aerospace and defense contractors, with its defense business standing out among peers on virtue of its broadly diversified programs, strong order bookings and backlog. Notably, the company’s Defense, Space & Security segment witnessed healthy revenues and margins during 2016, apart from making substantial progress on critical program milestones, including the first flight of its T-X trainer aircraft.

In particular, among other defense equipment, the company’s key forte has been combat-proven aircraft. In recent times, it started developing military aerial refueling and strategic transport aircraft. With its proven expertise in aerospace programs, the company has been clinching a huge number of contracts from the Pentagon for long. Among the major contracts won in 2016, the $2.8 billion deal from the U.S. Air Force for the first 19 KC-46 tankers and another $2.5 billion from the U.S. Navy for 20 P-8 Poseidon aircraft are of key importance.

More recently, Boeing secured a $983 million deal from the U.S. Air Force to provide engineering support services. The aforementioned procurement is another variant to such deals which we believe will boost the company’s revenues manifold. Going forward, management continues to anticipate modest defense spending over the next five years, which in turn will benefit aircraft majors like Boeing.

Price Performance

Boeing’s stock gained about 51.8% in last one year, outperforming the Zacks categorized Aerospace/Defense industry’s gain of 31.3%. This might have been triggered by the rising international demand for Boeing’s defense products, in particular for rotorcraft, commercial derivatives, fighters, satellites and services in the Asia Pacific as well as Gulf nations, as they have been strengthening their defense budget of late. Moreover, the company’s earnings estimates for this year reflect a year-over-year improvement of 20.3%, indicating further upside for this stock. The company also poses strong competition to peers including Lockheed Martin Corp. (LMT - Free Report) , Airbus Group SE (EADSY - Free Report) and General Dynamics Corp. (GD - Free Report) .

Zacks Rank

Boeing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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