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Boeing to Deliver P-8A Worth $1.6B to New Zealand Air Force

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Per major media releases, The Boeing Company (BA - Free Report) recently won a $1.6 billion deal from New Zealand to deliver four P-8A Poseidon maritime patrol planes. The P8-A Poseidon planes will replace six aging Orion patrol planes, currently operated by the Royal New Zealand Air Force.

Details of the Deal

Per the terms of the deal, Boeing will also provide training and infrastructure systems, apart from supplying the P-8A aircraft. The Royal New Zealand Air Force plans to take delivery of the planes and subsequently commence operations from 2023. Payments to Boeing for the deal will be made in installments over a number of years.

Benefits of the P-8A Poseidon

Boeing's P-8A is an aircraft designed for long-range anti-submarine warfare, anti-surface warfare, and maritime surveillance and reconnaissance missions. The aircraft is capable of broad-area maritime and littoral operations as well. It is also effective at search and rescue missions. P-8 is a derivative of the Next-Generation 737-800, which combines Superior performance and reliability with an advanced mission system that ensures maximum interoperability in the future battle space.

Our View

As Boeing’s key forte lies in manufacturing combat-proven aircraft, the company has inevitably secured large number of contracts from the Pentagon for long, courtesy of its proven expertise in aerospace programs. As a result, the company’s defense unit — Boeing Defense, Space & Security (BDS) segment — exhibits a solid revenue generation history. Evidently, the BDS unit reflected a 13% year over year top-line improvement in first-quarter 2018’s results.

Boeing already enjoys commercial relationship with Air New Zealand, and with the latest P-8A aircraft delivery deal, it has set foot in the country's defense forces. Notably, the deal has been sealed at a time when New Zealand has expressed concerns about China authoritatively pursuing interests in Asian military airspace. On that note, if China does try to intervene further, possibilities of increased adoption of Boeing’s surveillance military jets will enhance.  

On the domestic front, last month the U.S. Senate approved the fiscal 2019 defense budget that included a spending plan of $2.2 billion for the P-8A Poseidon, $600 million more than the previous year’s budget request. Such favorable budgetary developments reflect solid growth prospects for Boeing’s P-8A Poseidon in the United States going ahead, which, in turn, are likely to boost the company’s profit margin.

Price Movement

Boeing’s stock rallied about 65.8% in a year compared with the industry’s growth of 29.1%. 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 #1 (Strong Buy). A few other top-ranked stocks in the same space are Northrop Grumman (NOC - Free Report) , Engility Holdings (EGL - Free Report) and Wesco Aircraft Holdings (WAIR - Free Report) .

While Northrop Grumman sports a Zacks Rank #1, Engility Holdings 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 6.9% to $16.62 in the last 90 days.

Engility Holdings came up with an average positive earnings surprise of 15.08% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 0.5% to $1.91 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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