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Boeing (BA) Secures $41M Navy Deal to Modify P-8A Aircraft

Zacks Equity Research

The Boeing Company BA recently won a $40.6-million modification contract for procuring 13 mechanisms, which will be utilized as ancillary equipment for the U.S. Navy's P-8A aircraft. The deal also includes procurement of two forward mechanisms as ancillary equipment for the P-8A trainers. The contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland.

Majority of the work related to the deal will be performed in Seattle, WA. The entire task is expected to be completed by November 2022.

About P-8A & its Training Systems

Boeing's P-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 at search and rescue missions.

Notably, the P-8 training system provides comprehensive, realistic, aircrew training at a fraction of the cost of live aircraft training to the U.S. Navy. It offers combat-ready air, mission and maintenance crews in support of all platform missions, with a combination of equipment, software, courseware, personnel and logistical support. Meanwhile, Boeing’s turnkey training solution accurately simulates aircraft and mission systems, permitting sophisticated mission rehearsals with unmatched realism.

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 first-quarter 2019, its defense segment — Boeing Defense, Space & Security (BDS) — witnessed a robust top-line growth, courtesy of increased weapons deliveries. We believe that the latest contract win along with the other notable ones in recent times will help the BDS segment to consistently deliver solid performances in the upcoming quarters.

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 has started developing military aerial refueling and strategic transport aircraft for its fixed-wing military aircraft programs.

These apart, Boeing has been in an advantageous position as the U.S. Navy uses its ground based P-8 Training system for completing up to 70% of required aircrew training. As a result, the company’s P-8 Training system program enjoys a solid demand. This, in turn, is expected to boost inflow of orders from the Pentagon, like the latest contract, concerning further modernization of such trainings so that the U.S. Navy remains more mission ready.

Furthermore, the fiscal 2020 defense budget has allocated major war-fighting investments worth $57.7 billion for aircraft. The financial plan also included an investment plan of $1.5 billion for 6 P-8A Poseidon Jets. Such proposed inclusions reflect the BDS segment’s solid prospects, which in turn, are likely to boost the company’s profit margin.

Price Movement

In the past six months, shares of Boeing have gained 7.4% compared with the industry’s 10.1% growth.

Zacks Rank & Stocks to Consider

Boeing has a Zacks Rank #5 (Strong Sell).

A few better-ranked companies in the same industry are Leidos Holdings LDOS, Lockheed Martin LMT and Northrop Grumman NOC, 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.

Lockheed Martin delivered average positive earnings surprise of 17.35% in the trailing four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 4.7% to $20.41 over the past 90 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.

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