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Boeing, FedEx Announce $6.6B Deal for 24 Freighter Aircraft

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Per major media sources, The Boeing Company (BA - Free Report) recently secured a $6.6 billion contract for delivering 24 cargo aircraft to FedEx Express, which is a subsidiary of Tennessee-based FedEx courier delivery services company. Per the terms, FedEx has ordered 12 of Boeing’s 767 freighter aircraft and 12 of the twin aisle large-sized 777 cargo aircraft.

With the latest deal inked, Boeing has further strengthened its relationship with FedEx, one of its major cargo customers for nearly 41 years now. Notably, FedEx is currently the largest customer for both 767 and 777 cargo aircraft models of Boeing. FedEx also owns Boeing’s 777F EcoDemonstrator that provides clear air-turbulence detection and ground-collision avoidance, and flies on 100% biofuel to reduce carbon emissions.

A Brief Note on 767 and 777 Freighters

Boeing's 767 Freighter is a mid to large size, wide-body twin-engine jet airliner, which is capable of carrying approximately 52 tons of cargo with intercontinental range. Its advanced fuel-efficient 767-300 converted freighter comes with advanced avionics, aerodynamics, materials and propulsion systems.

On the other hand, the 777 Freighter is long-range, wide-body, twin-engine jet airliner that can fly 4,900 nautical miles with a full payload. It features an advanced maneuver load alleviation system that redistributes the aero­dynamic load on the wing, during non-normal flight conditions.

Our View

Over the past two years, there has been a solid recovery in the air cargo market, driven by the rising e-commerce demand and strong trade which has boosted the global air freight businesses. Evidently, air freight demand is expected to increase 4.5% in 2018, according to the International Air Transport Association (IATA). Given the solid growth prospects for this space, contracts like the latest one is likely to boost Boeing's top line from freighter aircraft.

Boeing has witnessed a successful year so far from the perspective of its wide-body freighters. In February 2018, the company received a delivery order for 18 747-8 freighters along with four 767 freighters to UPS. Moreover, Amazon acquired 40 used 767 freighter jets for its Amazon Air service, according to The Seattle Times.

Boeing has posted sales of more than 50 wide-body freighters this year compared to 11 sold in 2017, courtesy of the latest order placed by FedEx. This reflects the solid demand that exists for Boeing’s freighter aircraft. This must have prompted Boeing to increase the annual output of its 767 by 20% to 36 planes by 2020, as announced in May 2018.

Boeing Commercial Airplanes Segment, which develops and markets commercial jet aircrafts, including the 767, 777 and 747 freighter jets, witnessed a solid 5% sales improvement in first-quarter 2018. We expect Boeing to reflect similar strong results in this segment going ahead, which in turn are is likely to boost the company’s profit margin.

Price Movement

Boeing’s stock rallied about 78.8% in a year compared with the industry’s growth of 30.4%. The outperformance was primarily led by the robust worldwide demand for its commercial aircraft and military jets.

Zacks Rank & Other Stocks to Consider

Boeing currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the same space include Northrop Grumman Corporation (NOC - Free Report) , Textron Inc. (TXT - Free Report) and Wesco Aircraft Holdings, Inc. (WAIR - Free Report) .

While Northrop Grumman sports a Zacks Rank #1 (Strong Buy), Textron and Wesco Aircraft Holdings carry a Zacks Rank #2. 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 2.94% 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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