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Boeing (BA) Secures $327M Navy Deal to Upgrade P-8A Aircraft

Zacks Equity Research

The Boeing Company BA recently won a $327million contract to upgrade the P-8A Aircraft. The contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland.

Details of the Deal

Per the terms of the deal, the aerospace giant will develop, integrate and test Increment 3 Block capabilities into the P-8A aircraft for the Navy and the government of Australia.

Majority of the work related to the deal will be performed in Puget Sound, WA.  The entire task related to the deal is expected to be completed by March 2024. Boeing will utilize fiscal 2019 research, development, test and evaluation (Navy) funds and Cooperative Engagement Agreement funds for completing the task.

More on P-8A Aircraft

Boeing'sP-8A is an aircraft designed for long-range anti-submarine warfare, anti-surface warfare, maritime surveillance and reconnaissance missions, capable of broad-area maritime and littoral operations. It is also effective for search and rescue missions. P-8 is a derivative of the Next-Generation 737-800 that combines superior performance and reliability with an advanced mission system, ensuring maximum interoperability in the future battle space.

What’s Favoring Boeing?

Boeing, being one of the major players in the defense business, stands out among its peers by virtue of its broadly diversified programs, strong order bookings and solid backlog. During fourth-quarter 2018, its defense segment — Boeing Defense, Space & Security (BDS) — witnessed a 16% year-over-year increase in revenues to $6.11 billion, courtesy of increased weapons deliveries. We believe that the latest contract along with the other notable ones that the company won in recent times will help the BDS segment to continue delivering solid performances in upcoming quarters as well.

In particular, among other defense equipment, Boeing’s key forte lies in the development of combat-proven aircraft such as the P-8A Poseidon. Also, the company recently started developing military aerial refueling and strategic transport aircraft for its fixed-wing military aircraft programs. Such capabilities have enabled Boeing in clinching several contracts from the Pentagon on a frequent basis.

Furthermore, the fiscal 2019 defense budget has provisioned major war-fighting investments of $21.7 billion for aircraft, which also included an investment plan of $2.2 billion for 10 P-8A Poseidon Jets. Such proposed inclusions reflect solid prospects for the BDS segment, which in turn are likely to boost the company’s profit margin.

Price Movement

In a year’s time, shares of Boeing have gained 10.6% against the industry’s 5.5% decline. The outperformance was primarily supported by the robust worldwide demand for its commercial aircraft and military jets.

Zacks Rank & Other Key Picks

Boeing currently sports a Zacks Rank #1 (Strong Buy). A few other top-ranked stocks in the same sector are Spirit Aerosystems Holdings SPR, Textron Inc. TXT and HEICO Corporation HEI. While Spirit Aerosystems sports a Zacks Rank #1, Textron and HEICO carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here .

Spirit Aerosystems’ long-term earnings growth rate is projected at 7.80%. The Zacks Consensus Estimate for 2019 earnings has moved 3.7% north to $7.56 over the past 90 days.

Textron delivered average positive earnings surprise of 19.61% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 4.3% to $3.67 over the past 60 days.

HEICO Corporation’s long-term earnings growth rate is projected at 12.10%. The Zacks Consensus Estimate for 2019 earnings has moved 7% up to $2.14 over the past 90 days.

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