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Evaluating Boeing (BA) Stock After $9 Billion Pentagon Contract

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Shares of Boeing (BA - Free Report) popped Friday after the aerospace powerhouse landed a significant Defense Department contract to help expand its strong month-long run. So, let’s look at what’s going on with Boeing to see if investors might want to consider buying BA stock at the moment.

The Deal 

The U.S. Department of Defense announced on Thursday that it awarded Boeing its relatively standard “indefinite-delivery/indefinite-quantity contract” that could be worth as much as $9.2 billion for its Advanced Pilot Training aircraft. Boeing is initially set to build 351 new T-X jets and supply 46 associated ground-based training devices, or simulators, and “other ancillary supplies and service” for the Air Force.

Boeing could end up producing 475 aircraft and 120 training systems, which are scheduled to be completed by 2034. Boeing won the contract in partnership with Sweden’s Saab AB. The group beat out Boeing rival Lockheed Martin (LMT - Free Report) . “We expect T-X to be a franchise program for much of this century,” Boeing CEO Leanne Caret said in a statement.

The Air Force aims to replace its fleet of nearly 50-year-old T-38 planes. Analysts have said that the Air Force could eventually buy up to 600 planes. General Arnold Bunch of the Air Force told reporters that “two-thirds of what we train for the fighters in the fourth and the fifth-gen we actually can't do in the T-38.”

The U.S. aerospace firm also recently secured contracts to make helicopters for the Air Force and refueling drones for the U.S. Navy. With that said, analysts pointed to the massive T-X program as a key long-term win and a sign of Boeing’s competitive strength.

Overview

Moving on, it is worth taking a quick look at what else is going on with Boeing at the moment as it fights against Airbus and new business threats emerging in China, Japan, and Russia.

Boeing last week delivered one of its 787-9 Dreamliners to Shanghai Airlines, which marked the 100th aircraft the China Eastern Airlines subsidiary has purchased from Boeing and the first 787-9 Dreamliner. China is a key growth area for Boeing, so the success of its relationship with China Eastern Airlines will likely prove vital going forward. Boeing boasts that more than 60 Dreamliners have entered service across China since 2013.

The firm’s second-quarter revenues climbed 5% to $24.26 billion. BA also secured $27 billion in new orders and upped its full-year revenue guidance by $1 billion to between $97 and $99 billion.

Price Movement & Valuation

We can see that Boeing stock has outperformed its industry over the last five years and also crushes the S&P 500’s roughly 77% climb. More recently, shares of BA have skyrocketed 184% over the last 24 months, which outpaces Amazon’s (AMZN - Free Report) roughly 140% surge. Boeing stock is also up roughly 11% during the last six months.

 

Boeing is currently trading at 22.1X forward 12-month Zacks Consensus EPS estimates, which marks a premium to the S&P’s 17.5X and its industry’s 19.4X. BA has traded as high as 30.6X over the last year, with a one-year median of 23.1X.

Boeing stock is trading above its one-year low of 20.4X. But looking back over the last 15 years we can see that BA stock has consistently traded at a slight premium to its industry and is not too far out of line at the moment.

 

 

Growth Outlook

Boeing is projected to see its Q3 revenues dip by 0.22% to $24.25 billion, based on our current Zacks Consensus Estimate. With that said, the company’s full-year revenues are projected to pop by 5.71% to reach $98.73 billion and climb 6.08% in the following fiscal year.

Taking a look at the other end of the income statement, Boeing’s adjusted quarterly earnings are projected to surge 28.31% to reach $3.49 per share, while its full-year EPS figure is expected to expand by 21.8%.

Boeing is currently a Zacks Rank #3 (Hold) based on its mixed earnings estimate revision trends, but boasts an “A” grade for Growth in our Style Scores system. Shares of BA do sit right around their all-time high, so investors might want to keep a close eye on Boeing stock and look for a more opportune time to buy.

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