Boeing Picks B/E Aerospace for 737

The Boeing Company (BA - Analyst Report) announced that it has chosen B/E Aerospace Inc. (BEAV - Snapshot Report) to become the exclusive manufacturer of modular lavatory systems for Boeing's 737 Next-Generation family of airplanes. The estimated value of the award is in excess of $800 million, exclusive of retrofit orders, which are expected to be substantial.

The B/E Aerospace modular lavatory system or MLS utilizes B/E Aerospace, patent pending, Spacewall technology, which frees up floor space in the cabin, creating the opportunity to add up to six incremental passenger seats on each airplane.

B/E Aerospace MLS would integrate B/E Aerospace technologically advanced Aircraft Ecosystems vacuum toilet, long-life B/E Aerospace LED lighting and B/E Aerospace tamper proof, state-of-the-art lavatory oxygen system. B/E Aerospace expects delivery under the contract to begin in the third quarter of 2013.

Boeing enjoys a coveted position as the largest aircraft manufacturer in the world in terms of revenues, orders and deliveries. Besides, it is one of the leading global aerospace and defense contractors. Also, its revenues are spread across more than 90 countries.

Strong performance of the commercial airplanes business and stable core operations allowed Boeing to register a solid third quarter 2011. The company’s earnings surpassed both the year-ago figure and the Zacks Consensus Estimate.

Boeing expects its fiscal 2011 revenue to be in the range of $68 billion to $70 billion and earnings per share guidance for fiscal 2011 to be in the range of $4.30 – $4.40.

In hindsight, the U.S. GDP growth, in 2011, improved steadily with a 2.0% rise in the third quarter, up from 1.3% in the second and 0.4% in the first. In keeping with the momentum, we expect the final quarter to clock GDP growth of 3%.

However, for the inaugurating quarter of 2012, our optimism is tempered by weak US fundamentals that are on a tight leash because of the Euro-crisis and its effects on the global financial markets. Such trepidations will certainly add to the phobia in the public psyche, keeping the risks of further cutbacks in future defense budgets at a high. Boeing currently retains a Zacks #4 Rank, which translates into a short-term Sell rating.

Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. This is in sync with other aerospace and defense behemoths like General Dynamics Corporation (GD - Analyst Report) and Lockheed Martin Corporation (LMT - Analyst Report).

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