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Bell-Boeing JV Wins $4.2B Deal to Manufacture V-22 Variants

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Bell-Boeing, a joint venture (JV) between The Boeing Company (BA - Free Report) and Bell Helicopter — a unit of Textron Inc. (TXT - Free Report) — recently secured a modification contract in relation to V-22 aircraft. Per the terms, the JV will convert the V-22 tiltrotor aircraft advance acquisition contract to a multiyear contract.

Details of the Deal

Valued at $4.2 billion, the contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Per the agreement, the JV will involve in the manufacture and delivery of 39 CMV-22B aircraft for the U.S. Navy; 34 MV-22B aircraft for U.S. Marine Corps; 1 CV-22B for the U. S. Air Force; and 4 MV-22B aircraft for the government of Japan.

The majority of the work will be executed in Fort Worth and Amarillo, TX; and Ridley Park, PA; while the rest will be carried out in various locations within continental and outside continental United States.  The JV will utilize fiscal 2017 aircraft procurement (Navy, Air Force, and Marine Corps); and fiscal 2018 aircraft procurement (Navy) fund to complete the task by November 2024. 

This modification includes 67.9% of the work for the U.S. Navy; 24.8% for U.S. Marine Corps, 1.8% for the U.S. Air Force; and 5.5% for the government of Japan under the Foreign Military Sales program. 

A Brief Note on V-22 Jets

Bell-Boeing’s primary product, V-22 Osprey, is a multi-mission, tiltrotor military aircraft with both vertical as well as short takeoff and landing capabilities. It is designed to combine the functionality of a conventional helicopter with the long-range, high-speed cruise performance of a turboprop aircraft. This military aircraft has the capacity to carry 24 combat troops or up to 20,000 pounds of internal cargo or 15,000 pounds of external cargo. The CMV-22B, MV-22B and CV-2B are different variants of the V-22 Osprey.

The V-22 tiltrotor has been deployed in numerous missions around the world, including casualty evacuation, tactical recovery of aircraft and personnel, humanitarian assistance/disaster relief, resupply, VIP transport and theater security cooperation.

Our View

A rapid increase in terror attacks along with the widespread rise of ISIS has compelled nations to strengthen arsenal and bump up defense budget. The present U.S. administration is also in favor of raising defense spending in contrast to the budget sequestration enacted by the prior government.

The recently approved fiscal 2019 defense budget worth $716 billion further supports this fact. Thus, it is obvious that defense majors like Boeing and Textron will receive an increased flow of contracts from the Pentagon for their high-end defense equipment. In fact, the latest contract win by Bell-Boeing mirrors the same. Such contract inflows, in turn, should further drive these two defense contractors’ performance, thereby boosting their respective profit margins.

Price Movement

In a year’s time, Boeing’s shares have soared about 68.9%, outperforming the broader industry’s rally of 29.2%. This impressive performance was driven by the company’s record backlog supporting revenue growth, increased orders for commercial airplanes and expanded presence in domestic as well as international markets.

Meanwhile, Textron’s shares have gained around 38.1% in a year, ahead of the industry’s rally. This upside can be attributed to the company’s strong order growth along with its systematic inorganic growth strategy.

Zacks Rank & Other Stocks to Consider     

Both Boeing and Textron currently carry a Zacks Rank #2 (Buy). Some other top-ranked stocks in the same space include Northrop Grumman (NOC - Free Report) and Wesco Aircraft Holdings (WAIR - Free Report) . While Northrop Grumman sports a Zacks Rank #1 (Strong Buy), Wesco Aircraft Holdings carries a Zacks Rank of 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 moved 4.3% north to $16.62 in the last 60 days.

Wesco Aircraft Holdings’ long-term growth rate is projected at 12%. The Zacks Consensus Estimate for 2018 earnings moved up 5.5% to 77 cents in the last 60 days.

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