Boeing Wins Navy Deal To Support F/A And EA-18 Aircraft

The Boeing Company (NYSE:BA) recently won a $34.4-million modification contract for providing F/A-18A-F and EA-18G aircraft’s integrated product support and equipment engineering services. The services will be rendered to the Navy and the governments of Australia, Finland, Kuwait, Malaysia, Switzerland, Canada, and Spain.

Details of the Deal

Per the contract, Boeing will offer product support management, design interfacing, sustaining engineering, supply support, maintenance planning and provisioning, technical data updates, support equipment engineering as well as training and software integration services. The deal was awarded by the Naval Air Systems Command, Patuxent River, Maryland.

Majority of the work will be carried out in St. Louis, MI, while the rest would be performed in El Segundo, CA; Bethpage, NY and San Diego, CA. Work related to the deal is schedule to be completed in December 2018. The company will use Fiscal 2018 aircraft procurement (Navy) and foreign military sales funds will be utilized to finance the task.

Under the Foreign Military Sales program, the U.S. Navy will procure 85% of the contract value whereas the government of Australia would account for 9% of the same in order to get the work started. Government of Finland, Kuwait, Malaysia, Switzerland, Canada, and Spain will each get 1% of its total value.

A Brief Note on F/A-18 and E/A-18

Boeing’s F/A-18 Block III Super Hornet is a twin-engine, supersonic, all weather multirole fighter jet. The U.S. Navy’s tactical and air superiority aircraft is capable of performing virtually every mission in the tactical spectrum, including air superiority, day/night strike with precision-guided weapons, fighter escort, close air support, suppression of enemy air defenses, maritime strike, reconnaissance, forward air control and tanker missions.

Boeing’s EA-18G Growler is the most advanced airborne electronic attack platform which operates from either an aircraft carrier or from land bases. The aircraft helps combat electronic attack and suppresses enemy air defences, particularly at the start and at early stages of on-going hostilities. The Growler aircraft has 11 weapon stations for carrying electronic mission systems and weapons and can then be used to carry out conventional strike missions. The major contractor Northrop Grumman (NYSE:NOC) manufactures the rear and centre fuselage sections and is responsible for the manufacture of the structural components.

What’s Favoring Boeing?

Boeing is one of the major players in the defense business and stands out among its peers by virtue of its broadly diversified programs, strong order bookings and solid backlog. Its defense segment, known as Boeing Defense, Space & Security (“BDS”), witnessed an approximate 5% year-over-year increase in fourth-quarter 2017 revenues to $5.54 billion, driven by higher weapons deliveries. Boeing's backlog at BDS stood at $50 billion, 40% of which comprised orders from international clients. In particular, among other defense equipment, the company’s key forte has been combat-proven aircraft. Notably, with its proven expertise in aerospace programs, Boeing has been winning a huge number of contracts from the Pentagon for long.

Inevitably, Boeing has been witnessing strong demand for its fighter aircrafts and major aerospace programs, including the F-18 and EA-18 aircrafts. This was evidenced by the delivery of the 150th EA-18G Growler to the U.S. Navy along with $10 billion of new orders booked during the last quarter. We believe the latest contract reflects this that Boeing’s jet fighters enjoy in the global market.

Meanwhile, last month, President Trump proposed fiscal 2019 defense budget that provisions for major war fighting investments of $21.7 billion for aircrafts. Boeing, being the largest aircraft manufacturer in the United States, will surely be a significant beneficiary from the proposed budget, which further includes an investment plan of $2 billion for procuring 24 F/A-18 aircrafts. Such proposed inclusions reflect solid growth prospects for BDS segment, which in turn are likely to boost the company’s profit margin.

Price Movement

Boeing’s stock has rallied about 81.1 % in a year, compared with the broader industry’s gain of 44.4%. The outperformance was primarily led by significant demand for its military jets along with robust worldwide demand for its commercial aircraft.

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) , each flaunting a Zacks Rank #1. 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 63 cents to $5.80 in the last 90 days.

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