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Boeing (BA) Wins $115M Deal to Support P-8A Aircraft Program

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The Boeing Company (BA - Free Report) recently clinched a modification contract worth $115 million. Per the deal the company will provide integrated logistics services and site activation support to the U.S. Navy and the government of Australia for P-8A aircraft. Work related to this deal is scheduled to be over by Sep 2021.

The contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. Majority of the work will be executed in Seattle, WA and Oklahoma City, OK. The company will utilize fiscal 2018 aircraft procurement (Navy) and foreign military sales funds to partially finance the task.

P-8A Aircraft

P-8A Multi-mission Maritime aircraft, also known as Poseidon, is used for long-range anti-submarine warfare, anti-surface warfare, and intelligence, surveillance and reconnaissance missions. It is also capable of broad-area littoral operations.

A derivative of the Next-Generation 737-800, the P-8A, and its variant for India, the P-8I, combine superior performance and reliability with an advanced mission system that ensures maximum interoperability during combats.

Our View

Being one of the major players in the defense business, Boeing’s defense segment stands out among its peers by the virtue of its broadly diversified programs, strong order bookings and backlogs. The company reshapes its defense portfolio time to time. In July 2017, it created a segment named Boeing Global Services (BGS) to include its Commercial Aviation Services businesses and certain Boeing Defense, Security & Services (BDS) businesses. The move is expected to enhance product efficiency and lower costs in addition to maintaining delivery schedules.

Among other defense equipment, Boeing’s forte has been combat-proven aircraft. Also, it started developing military aerial refueling and strategic transport aircraft of late. In fact, with its proven expertise in aerospace programs including P-8A, the company has been clinching a slew of contracts from the Pentagon. Evidently, last month the company won a modification contract worth $1.2 billion for the manufacture and delivery of 10 full-rate production P-8A aircraft from the 9th Lot.

During the third quarter of 2017, the BGS segment booked new orders worth $6 billion. A similar rise in orders can be expected at this segment, with management consistently witnessing solid demand for its defense programs.

Considering the approval of the $700-billion National Defense Authorization Act, we expect Boeing to win more contracts from the Pentagon buoyed by solid demand for military aircraft.

Price Movement

Boeing’s shares have moved up about 102.3% in a year’s time compared with the broader industry’s gain of 49.3%. The outperformance was primarily led by higher demand for military and commercial aircraft.

 

Zacks Rank & Key Picks

Boeing carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the same sector are Curtiss-Wright Corporation (CW - Free Report) , Spirit Aerosystems Holdings, Inc. (SPR - Free Report) and Huntington Ingalls Industries, Inc. (HII - Free Report) , each of which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Curtiss-Wright posted an average positive earnings surprise of 11.78% in the past four quarters. The Zacks Consensus Estimate for the company’s 2018 earnings rose by 3 cents over the last 60 days.

Spirit Aerosystems delivered an average positive earnings surprise of 4.52% over the past four quarters. The Zacks Consensus Estimate for the company’s 2018 earnings has risen by a dime in the past 60 days.

Huntington Ingalls posted an average positive earnings surprise of 14.22% in the last four quarters. The company has a solid long-term earnings growth rate of 15%.

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