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Bell-Boeing Wins Navy Deal to Support MV-22 Tiltrotor Program

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Bell-Boeing recently secured a contract for providing flight test sustainment support to the MV-22 variant of V-22 family of tiltrotors. Notably, Bell-Boeing is a joint venture (JV) between The Boeing Company (BA - Free Report) and Bell Helicopter — a unit of Textron Inc. (TXT - Free Report) . Work related to the deal is scheduled to be completed by December 2019.

Valued at $23.2 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Per the terms of the agreement, the JV will provide analysis of flight tests, in addition to offering flight test support for five MV-22 aircraft. The deal will serve the U.S. Navy, Air Force and the government of Japan. The JV will carry out the tasks in Patuxent River, MD.

A Brief Note on V-22 Jets

Bell-Boeing’s primary product, V-22 Osprey, is a family of 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 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. Notably, the MV-22 is a variant of the V-22 Osprey.

Apart from wide usage in the domestic front, this family of tiltrotors has been deployed in numerous missions overseas including casualty evacuation, tactical recovery of aircraft and personnel, humanitarian assistance/disaster relief, resupply, VIP transport, along with theater security cooperation.

Our View

Increasing terrorist attacks across the globe along with the widespread rise of ISIS have compelled nations to strengthen arsenal, and bump up defense budget in the recent times. 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 U.S. fiscal 2019 defense budget worth $716 billion further supports this fact. The financial plan includes $617.1 billion as base budget, highlighting a 17.8% increase from the 2018 CR level. As a result, defense majors like Boeing and Textron are expected to 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.

We expect such contract inflows to further boost the performance of these two defense contractors and bolster their respective profit margins in the near term.

Price Performance

In a year’s time, shares of Boeing have gained about 11.3% against the industry’s 7% decline. The outperformance can be attributed to the company’s record backlog that supported revenue growth, increased orders for commercial airplanes, and expanded presence in domestic as well as international markets.

Meanwhile, Textron, a Zacks Rank #4 (Sell) stock,has lost 19.9% over a year, wider than the industry’s 7% decline. The underperformance can be contributed to intensifying competition that the company faces in the defense space.

Zacks Rank & Other Stocks to Consider

Boeing currently carries a Zacks Rank #2 (Buy). Other top-ranked companies in the same sector include AeroVironment, Inc. (AVAV - Free Report) and Teledyne Technologies Incorporated (TDY - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AeroVironment delivered average positive earnings surprise of 257.01% in the trailing four quarters. The Zacks Consensus Estimate for fiscal 2019 earnings has moved 8.8% north to $1.48 over the past 90 days.

Teledyne Technologies delivered average positive earnings surprise of 12.92% in the preceding four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 5.3% to $9 over the past 90 days.

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