Textron (TXT) Unit Awarded $30M MEUAS Modification Contract

AAI Corporation, an operating unit of Textron Inc. (NYSE:TXT) has been awarded a modification contract for the Mid-Endurance Unmanned Aircraft Systems (MEUAS) from the U.S. Special Operations Command (USSOCOM).

Details of the Contract

The contract has a maximum value of $30 million. Per the terms, AAI Corp. will offer intelligence, surveillance and reconnaissance (ISR) services for MEUAS at various locations, worldwide. The contract will utilize fiscal 2017 operations and maintenance funds to complete the work.

The modification witnessed a maximum extension for a period of one year with a ceiling value of $105 million. Per the terms of this extension, while implementing transition to the MEUAS III contract, the company is required to reduce critical services gap.

Why Textron?

Acquired by Textron Inc. in 2007, AAI Corp. is one of the very few companies which are known to design and produce successfully fielded, operational unmanned aircraft system (UAS) for the U.S. Department of Defense (DoD).

Textron’s unmanned aircraft systems, advanced marine craft, armored vehicles, intelligent battlefield and surveillance systems, intelligence software solutions, precision smart weapons, piston engines, test and training systems and total life cycle sustainment and operational services have gained immense popularity over the years.

The company enjoys a geographically diverse network of aircraft, defense & intelligence, industrial and finance businesses negate any specific business risk. Textron has been globally recognized for its brand such as Bell Helicopter, Cessna Aircraft Company, Jacobsen, Kautex, E-Z-GO and Greenlee.

Earlier this month, AAI Corp. won a $475 million contract from the USSOCOM for the MEUAS. (Read more: Textron Unit Secures $475M Contract for MEUAS Services)

The Need for UAS

The rise in global terrorism has spurred demand for UAS. The unmanned aircraft technology is known to provide superior capabilities.

To enhance the UAS technology, aerospace giant The Boeing Co.'s (NYSE:BA) unit was also awarded a $475 million contract by the USSOCOM earlier this month. Per the terms of the contract, the company will provide ISR services in support of the MEUAS program at multiple locations across the globe. (Read more: Boeing's Unit Wins $475M Deal to Support MEUAS Program)

The U.S. is primarily using the domestic UAS operations for realistic training experience, test equipment and providing tactics to the DoD forces to prepare for any potential overseas warfighting missions along with helping in Defense Support of Civilian Authorities (DSCA) training and exercises. Considering these developments, we expect Textron to win more such deals, like the recent one, in the coming days, which in turn will enhance its sales from UAS.

Price Movement

Textron has marginally outperformed the Zacks categorized Aerospace/Defense industry in the last 12 months. The company’s shares have returned 32.8% compared with the industry’s average of 31.9%.

The company's continuous efforts to make solid progress with its new product offerings ensure improved competitiveness and have attract notable orders from DoD, which in turn has led to this outperformance.

Zacks Rank and Stocks to Consider

Textron currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same space are Northrop Grumman Corporation (NYSE:NOC) and General Dynamics Corporation (NYSE:GD) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Northrop Grumman Corporation delivered a positive earnings surprise of 25.17% in the first quarter 2017. The company’s 2017 Zacks Consensus Estimates moved up by 4.1% to $12.31 per share in the last 90 days.

General Dynamics Corporation delivered a positive earnings surprise of 6.9% in the first quarter 2017. The company’s 2017 Zacks Consensus Estimates moved up by 0.8% to $9.79 per share in the last 90 days.

Sell These Stocks. Now.

Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These are sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500. See today's Zacks ""Strong Sells"" absolutely free >>