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Boeing Wins $164M Modification Deal to Upgrade F/A-18 Jets

Zacks Equity Research

The Boeing Company BA recently secured a modification contract to upgrade its F/A-18E/F Super Hornet aircraft. Valued at $163.9 million, the contract has been awarded by the Naval Air Systems Command, Patuxent River, Maryland.

Per the terms of the deal, Boeing will provide for the service life modification (SLM) of up to 10 F/A-18E/F Super Hornet jets. The SLM will extend the operational service life of the aircraft from 6,000 to 10,000 flight hours.   

Work related to the deal will be executed in St. Louis, MO and San Antonio, TX, and is expected to be completed by May 2021.

Increasing Demand for F/A-18

Boeing’s Super Hornet aircraft is consistently evolving to offset future threats. Moreover, its radar, mission computers and sensors continue to evolve in order to meet extensive mission profiles. Boeing has also developed the Advanced Block III Super Hornet owing to the ever rising worldwide demand of military aircraft. This aircraft is likely to complement existing and future air-wing capabilities that include battle-space situational awareness, counter stealth targeting, increased acceleration and improved survivability.

Backed by such major developments, Boeing is witnessing strong demand for its fighter aircraft and major aerospace programs including the F-18 aircraft. The latest contract is a clear testament to that.

What’s Favoring Boeing?

Rising territorial disputes worldwide and heightened threat of terrorism have prompted nations across the globe to enhance their military arsenal, thereby pushing up defense spending substantially. With military aircraft constituting a major portion of a country’s armory, defense contractors that specialize in combat jets are rapidly gaining tractions in recent times.

As Boeing’s key forte lies in manufacturing combat-proven aircraft, it has been securing large number of contracts from the Pentagon as well as overseas for long, courtesy of its proven expertise in aerospace programs. This, in turn, boosts the company’s defense segment considerably. Evidently, revenues at its Defense, Space & Security (BDS) segment improved 2% year over year to $6.61 billion in first-quarter 2019.

Furthermore, President Trump proposed fiscal 2020 defense budget in March 2019 that provisioned major war fighting investments of $57.7 billion for aircraft, including investment plan of $2 billion for procuring 24 F/A-18 Jets. Such proposed inclusions should usher in more contract wins for Boeing in coming days, like the latest one, and in turn are likely to boost the company’s profit margin.

Price Movement

In the past six months, shares of Boeing have rallied 11.2% compared with the industry’s 9.7% growth. The outperformance can be primarily attributed to the robust worldwide demand for its commercial aircraft and military jets.

Zacks Rank & Key Picks

Boeing currently carries a Zacks Rank #3 (Hold). A few better-ranked companies in the same space are Leidos Holdings, Inc. LDOS, Northrop Grumman Corp. NOC and Wesco Aircraft Holdings, Inc. WAIR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Leidos Holdings delivered average positive earnings surprise of 6.81% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has moved 1.1% up to $4.58 over the past 60 days.

Northrop delivered average positive earnings surprise of 18.50% in the trailing four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 1.8% to $19.29 over the past 90 days.

Wesco Aircraft’s long-term growth estimate currently stands at 12%. The Zacks Consensus Estimate for 2019 earnings has moved 3.7% north to 84 cents over the past 90 days.

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Wesco Aircraft Holdings, Inc. (WAIR) : Free Stock Analysis Report
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