L3 Technologies Wins Deal To Upgrade F/A-18 & EA-18 Jets

L3 Technologies, Inc. (NYSE:LLL) recently secured a contract per which the company will procure new training systems as well as hardware and software upgrades for F/A-18C/D/E/F and EA-18G jets. Work related to this deal is scheduled to be over by April 2023.

Valued at $218.1 million, the contract was awarded by the Naval Air Warfare Center Training Systems Division, Orlando, FL. The latest deal will modify the existing aircrew training systems for these military aircraft. Further, this contract will support software configuration set upgrades, engineering change proposals, Naval Aviation Simulation Master Plan upgrades and spare parts for hardware deliverables.

Fiscal 2016 aircraft procurement (Navy) and 2018 operation and maintenance (Navy) funds will be utilized to partly finance the task, which will be carried out in Arlington, TX.

A Brief Note on F/A-18 & EA-18G Jets

Boeing’s (NYSE:BA) 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.

The company’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 defenses, particularly at the start and at early stages of on-going hostilities. The major contractor Northrop Grumman (NYSE:NOC) manufactures the rear and center fuselage sections of this jet.

What’s Favoring L3 Technologies?

Due to rising political uncertainties and terrorism worldwide, especially the growing crisis in the Middle East, the defense industry is gaining traction. Countries, throughout the world, are increasing their expenditure on various defense equipment, with aircraft being one of their top priorities.

The United States is the largest spender in defense space. Apart from manufacturing high-end military jets, providing state-of-the-art training to pilots along with other software and hardware upgrades to aircraft form an integral part of the nation’s defense aircraft management.

L3 Technologies’ Aerostructures business unit provides avionics hardware and software systems, while its Electronic Systems business segment offers aircraft simulation and training systems. In fact, realizing the expanding market for aircraft simulation and training market, L3 Technologies acquired Doss Aviation last September.

Doss Aviation is the sole provider of initial flight training for U.S. Air Force pilots and offers curriculum coursework and flight training to both fixed-wing and unmanned aircraft pilots. Thus, by purchasing Doss Aviation, L3 Technologies significantly expanded its footprint in the military aircraft simulation and training market worth multi-billion-dollar.

In February 2018, President Trump proposed fiscal 2019 defense budget that provisions for major war fighting investments of $21.7 billion for aircrafts, which includes an investment plan of $2 billion for procuring 24 F/A-18 aircraft. With F/A-18 and EA-18 aircraft being in high demand, procurement contracts for these jets from Pentagon will boost L3 Technologies’ profit margin, as the company will offer these jets’ necessary technological upgrades.

With the budget including facilities investment of $10.5 billion, along with training solutions, we expect L3 Technologies to win more such contracts like the latest one in the coming days.

Price Performance

L3 Technologies stock has returned 25% over a year, underperforming the 28.9% rally of the industry it belongs to. This might have been caused by the weak performance that the company has been witnessing in some of its product lines. The downward trend in margins for service-related work due to competitive pressure remains a concern.

Zacks Rank & Key Pick

L3 Technologies currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the same sector is Huntington Ingalls Industries (NYSE:HII) , which sports a Zacks Rank #1 (Strong 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.

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