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Bell-Boeing JV Secures Navy Deal to Upgrade MV-22 Aircraft

Zacks Equity Research

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 aircraft. Per the terms of the deal, the JV will upgrade four MV-22 aircraft from the Block B to the Block C configuration to support the Common Configuration Readiness and Modernization Program (CC-RAM).

About the Deal

Valued at $85.7 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. Majority of the work will be carried out in Ridley Park, PA. The JV aims to complete the task in March 2021.

Per the terms of the agreement, the JV will also offer the planned maintenance interval effort for one of the CC-RAM aircraft.

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 is a variant of the V-22 Osprey.

Apart from its well-established dominance in the United States, the V-22 tiltrotor has been deployed in numerous missions overseas as well, like that of 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 the 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 10.8% against the industry’s 0.5% decline.

Meanwhile, Textron has lost 11.8% in a year compared with the industry’s decline.

Zacks Rank & Key Picks    

Boeing currently sports a Zacks Rank #1 (Strong Buy), while Textron carries a Zacks Rank #2 (Buy).

A few similar-ranked stocks in the same sector are Spirit Aerosystems Holdings SPR and Heico Corporation HEI. While Spirit Aerosystems sports a Zacks Rank #1, Heico carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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

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

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The Boeing Company (BA) : Free Stock Analysis Report
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Textron Inc. (TXT) : Free Stock Analysis Report
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