Boeing (BA) Wins $312M Air Force Contract For JDAM Tail Kits

The Boeing Company’s (NYSE:BA) Defense Space and Security segment recently won a $312-million ceiling increase modification contract for providing Joint Direct Attack Munition (JDAM) tail kits. The contract has been awarded by the Air Force Life Cycle Management Center, Hill Air Force Base, Utah.

Details of the Deal

Per the terms, Boeing will offer additional JDAM strap-on inertial guidance kits that would receive guidance updates from global positioning systems. These upgrades will enhance the accuracy of conventional inventory bombs.

Work related to the deal will be performed in St. Louis, MO, and is scheduled to be completed by Mar 30, 2020. Boeing will utilize fiscal 2018 procurement, operations and maintenance funds to finance the task.

A Brief Note on JDAM

JDAM is a low-cost guidance tail kit that converts existing unguided free-fall bombs into guided weapons accurately. The JDAM kit consists of a new tail section that contains an inertial navigation system/global positioning system (INS/GPS) and body strakes for additional stability and lift. With the help of JDAM, bombs can be accurately delivered in any weather conditions and be launched at a great distance from the target.

The U.S. Air Force, U.S. Navy and the militaries of more than 26 additional countries employ JDAM. Its latest version, JDAM Extended Range features a modular add-on wing kit that will unfold in flight. The kit can also be coupled with other modular enhancements such as laser sensors.

Our View

Boeing Defense Space and Security (BDS) segment delivered a solid performance last year in terms of revenues and margins along with securing key contracts and achieving critical program milestones, including its ongoing progress on the tanker program. Impressively, the BDS segment was able to clinch massive orders totaling $10 billion during fourth-quarter 2017.

Moreover, the segment witnessed an approximate 5% year-over-year increase in fourth-quarter revenues to $5.54 billion, driven by higher weapon deliveries. The company’s backlog for the segment was $50 billion. We expect contract wins like the latest one to enable the company to deliver such notable performance in quarters ahead as well.

Meanwhile, in February 2018, President Trump proposed fiscal 2019 defense budget that provisions for a $3-billion investment in Boeing’s 15 KC-46 Tanker Replacements, $2 billion for procuring 24 F/A-18s, $1.3 billion for 60 AH-64E Attack Helicopters and $2.2 billion for 10 P-8A jets. Moreover, the company has of late been witnessing solid funding support above the President's budget request for a number of programs, including the F-18, CH-47 Chinook, Ground-Based Midcourse Defense, AH-64 Apache (NYSE:APA), the V-22 and space launch system.

These are indicative of the fact that Boeing, being one of the primary defense contractors in the United States, can be expected to win more defense contracts in the days to come, which in turn will boost its profit margin substantially.

Price Movement

Boeing’s stock has rallied about 84.9 % in a year, compared with the broader industry’s gain of 47.3%. The outperformance was primarily led by the robust worldwide demand for its commercial aircraft as well as military jets.

Zacks Rank & Other Stocks to Consider

Boeing currently sports a Zacks Rank #1 (Strong Buy).

A few other top-ranked stocks in the same sector are Huntington Ingalls (NYSE:HII) and Curtiss-Wright Corporation (NYSE:CW) ) and Northrop Grumman Corporation (NYSE:NOC) . While Huntington Ingalls and Curtiss-Wright flaunt a Zacks Rank #1, Northrop carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls recorded an average positive earnings surprise of 3.85% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by $5.44 to $17.38 in the last 90 days.

Curtiss-Wright Corporation recorded an average positive earnings surprise of 15.06% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 60 cents to $5.79 in the last 90 days.

Northrop Grumman Corporation recorded an average positive earnings surprise of 16.17% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by $1.73 to $15.25 in the last 90 days.

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