Boeing Secures $1.2B Deal for Manufacturing P-8A Aircraft

The Boeing Co BA recently secured a modification contract for the manufacture and delivery of 10 full-rate production P-8A aircraft from the 9th Lot. Of the 10 jets, seven will be provided to the U.S. Navy and three to the U.K. government. The contract will also offer Lot 9 segregable efforts, which include unknown obsolescence, class I change assessments and obsolescence monitoring.

Details of the Deal

Valued at $1.2 billion, the contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Majority of the work will be carried out in Seattle, WA, while the rest will be executed at various other locations across the U.S. and Cambridge, U.K.

Boeing will utilize fiscal 2018 aircraft procurement (Navy) and foreign military sales (FMS) funds to complete the task. Work related to the deal is scheduled to be over by December 2020.

About P-8A Aircraft

Boeing’s P-8A Multi-mission Maritime aircraft, also known as Poseidon, is used for long-range anti-submarine warfare, anti-surface warfare, and intelligence, surveillance and reconnaissance missions. It is also capable of broad-area littoral operations.

A derivative of the Next-Generation 737-800, the P-8A, and its variant for India, the P-8I, combine superior performance and reliability with an advanced mission system that ensures maximum interoperability in the future battle space.

Our View

Being one of the major players in the defense business, Boeing’s defense segment stands out among peers by virtue of its broadly diversified programs, strong order bookings and order backlog. The company has also reshaped its defense portfolio from time to time. In July, it created a segment named Boeing Global Services (BGS) to include its Commercial Aviation Services businesses and certain Boeing Defense, Security & Services (BDS) businesses. The move is expected to enhance product efficiency and lower costs for Boeing's defense customers in addition to maintaining delivery schedules.

In particular, among other defense equipment, Boeing’s forte has been combat-proven aircraft. Also, it started developing military aerial refueling and strategic transport aircraft of late. In fact, with its proven expertise in aerospace programs, the company has been clinching a number of contracts from the Pentagon.

During the third quarter of 2017, the BDS segment booked new orders worth $6 billion. A similar rise in orders can be expected at this segment, with management consistently witnessing solid demand for its defense programs.

Considering the approval of the $700-billion National Defense Authorization Act, we expect Boeing to win more contracts from the Pentagon buoyed by solid demand for its military aircraft.

Price Movement

Boeing has moved up about 87.4% in a year’s time compared with the broader industry’s gain of 43.4%. The outperformance was primarily led by significant demand for its military jets along with long-term robust demand for its commercial aircraft.

Zacks Rank & Key Picks

Boeing carries a Zacks Rank #3 (Hold). A few better-ranked stocks from the same sector are Curtiss-Wright Corporation CW, Leidos Holdings, Inc. LDOS and Huntington Ingalls Industries, Inc. HII. While Curtiss-Wright sports a Zacks Rank #1 (Strong Buy), Leidos Holdings and Huntington Ingalls carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Curtiss-Wright posted an average positive earnings surprise of 11.78% for the past four quarters. The Zacks Consensus Estimate for current-quarter earnings rose by 22 cents over the last 60 days.

Leidos Holdings has an average positive earnings surprise of 14.81% for the past four quarters. The Zacks Consensus Estimate for current-year earnings has risen by 14 cents in the past 60 days.

Huntington Ingalls posted an average positive earnings surprise of 14.22% for the last four quarters. The Zacks Consensus Estimate for current-year earnings has risen by 8 cents in the past 30 days.

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