Bell-Boeing Wins $21M Deal to Support V-22 Family of Jets

Bell-Boeing, a joint venture (JV) between The Boeing Company BA and Bell Helicopter — a unit of Textron Inc. TXT — recently secured a modification contract pertaining to the MV-22 and CV-22 aircrafts. Per the terms of the deal, the JV will offer additional Joint Performance Based Logistics support to the Marine Corps’ MV-22 as well as the Air Force and Special Forces Operations Command’s CV-22 jets.

Valued at $20.5 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. Majority of the work will be carried out in Fort Worth, TX and Philadelphia, PA. The JV aims to complete the task in January 2019.

A Brief Note on V-22 Jets

Bell-Boeing’s primary product, V-22 Osprey, is a family of multi-mission, tiltrotor military aircraft with both vertical as well as short takeoff and landing capabilities. It is designed to combine the functionality of a conventional helicopter with the long-range, high-speed cruise performance of a turboprop aircraft. This military aircraft has the capacity to carry 24 combat troops or up to 20,000 pounds of internal cargo or 15,000 pounds of external cargo. Notably, the MV-22 and CV-22 are different variants of the V-22 Osprey.

Internationally, the V-22 tiltrotor has been deployed in numerous missions, including casualty evacuation, tactical recovery of aircraft and personnel, humanitarian assistance/disaster relief, resupply, VIP transport and theater security cooperation.

Our View

A rapid increase in terror attacks along with the widespread rise of ISIS has compelled nations to strengthen arsenal and bump up defense budget. The present U.S. administration is also in favor of raising defense spending in contrast to the budget sequestration enacted by the prior government.

The fiscal 2019 defense budget worth $716 billion further supports this fact. Notably, this budget includes $617.1 billion as base budget, highlighting a 17.8% increase from the 2018 CR level. As a result, defense majors like Boeing and Textron will receive an increased flow of contracts from the Pentagon for their high-end defense equipment. In fact, the latest contract win by Bell-Boeing mirrors the same. Such contract inflows, in turn, should further boost these two defense contractors’ performance, thereby bolstering their respective profit margins.

Price Performance

In a year’s time, shares of Boeing have gained about 13.5% against the industry’s 2.8% decline. This impressive performance can be attributed to the company’s record backlog supporting revenue growth, increased orders for commercial airplanes and expanded presence in domestic as well as international markets.

Meanwhile, Textron has lost 0.8% in a year compared with the industry’s decline. This outperformance can be attributed to the company’s solid order growth and its systematic inorganic growth strategy.

Zacks Rank & Other Key Picks

Boeing currently carries a Zacks Rank #2 (Buy), while Textron has a Zacks Rank #4 (Sell). A few top-ranked companies in the same sector are Aerojet Rocketdyne Holdings AJRD and Raytheon Company RTN.

While Aerojet Rocketdyne sports a Zacks Rank #1 (Strong Buy), Raytheon carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne came up with average positive earnings surprise of 19.27% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has increased 43.3% to $1.82 in the past 90 days.

Raytheon delivered average positive earnings surprise of 6.71% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has moved up 1.7% to $10.10 cents in the past 90 days.

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