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Boeing (BA) Wins $1.5B Navy Deal for F/A and E/A18 Aircraft

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The Boeing Company (BA - Free Report) recently won a $1.52 billion contract to provide system configuration sets and associated services for life-cycle upgrading of the F/A-18A/B, C/D, E/F and EA-18G aircraft. The deal will cater to the U.S. Navy and foreign military sales (FMS) customers.

Details of the Deal

Per the terms, Boeing will provide deliverables and services including FMS unique system configuration sets, system improvement and demonstration products, laboratory upgrades, and studies and analysis. The deal also includes system configuration sets, software integration laboratory and on-site engineering services. The contract was awarded by the Naval Air Warfare Center Weapons Division, China Lake, CA.

Majority of the work will be performed in St. Louis, MI, while the remaining work will be executed in China Lake, CA. Work related to the deal is expected to get completed in June 2023. Boeing will utilize fiscal 2018 working capital funds (Navy) to complete the task. The contract includes 78% of the work for the U.S. Navy and 22% for its various FMS customers.

Benefits of the F/A-18 and E/A-18 Jets

The U.S. Navy benefits a great deal from Boeing’s F/A-18 Block III Super Hornet, which is a supersonic, all weather multirole fighter jet. The jet helps the U.S. Navy to perform virtually every mission in the tactical spectrum including air superiority, day/night strike with precision-guided weapons, fighter escort, close air support, suppression of enemy air defenses, maritime strike, reconnaissance and forward air control along with tanker missions.

On the other hand, Boeing’s EA-18G Growler, an advanced airborne electronic attack (AEA) platform, provides tactical jamming and electronic protection to the U.S. Navy and its respective military forces. The aircraft has 11 weapon stations for carrying electronic mission systems and weapons, which can be used to carry out conventional strike missions and suppress enemy air defenses.

What’s Favoring Boeing?

Boeing’s key forte lies in the manufacturing of combat-proven aircraft. This has allowed the company to secure a large number of contracts from the Pentagon for long, courtesy of its proven expertise in aerospace programs. Subsequently, revenues of its Defense, Space & Security (BDS) segment witnessed a 13% rise year over year to $5.76 billion in first-quarter 2018.

Further, last month Boeing entered into an agreement to acquire KLX Inc., a major independent provider of aviation parts and services in the aerospace industry. The acquisition, once completed, should allow Boeing to enhance its global parts distribution and supply chain services, and expand the company’s footprint in the $2.6-trillion services market.

Meanwhile, President Trump proposed fiscal 2019 defense budget in February 2018 that provisioned major war-fighting investments of $21.7 billion for aircraft. Further, it included an investment plan of $2 billion for procuring 24 F/A-18Jets. Such proposed inclusions reflect solid growth prospects for the BDS segment, which in turn are likely to boost the company’s profit margin.

Price Movement

Boeing’s stock rallied about 85.4% in a year compared with the industry’s growth of 36.8%. The outperformance was primarily led by the robust worldwide demand for its commercial aircraft and military jets.



Zacks Rank & Key Picks    

Boeing currently carries a Zacks Rank #2 (Buy). A few similar and better-ranked stocks in the same space are Northrop Grumman Corp. (NOC - Free Report) , Textron Inc. (TXT - Free Report) and Wesco Aircraft Holdings, Inc. .

While Northrop Grumman sports a Zacks Rank #1 (Strong Buy), Textron and Wesco Aircraft Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Northrop Grumman delivered an average positive earnings surprise of 13.87% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 5.65% to $16.44 in the last 90 days.

Textron came up with an average positive earnings surprise of 16.64% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 2.95% to $3.15 in the last 90 days.

Wesco Aircraft Holdings’ long-term growth rate is pegged at 12%. The Zacks Consensus Estimate for 2018 earnings has risen by 10% to 77 cents in the last 90 days.

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