Bell-Boeing Wins $144M Deal to Support V-22 Tiltrotor Program

Bell-Boeing, a joint venture (JV) between The Boeing Company BA and Bell Helicopter — a unit of Textron Inc. TXT, recently secured a contract for providing logistics and engineering support to the V-22 family of tiltrotors. Work related to the deal is scheduled to be completed by Nov 30, 2019.

Valued at $143.8 million, the contract was awarded by the Defense Logistics Agency Aviation, Philadelphia, PA. The deal will serve the U.S. Navy, Air Force and Marine Corps. The JV will carry out the tasks in Texas and Pennsylvania.

Attributes of 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 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.

Apart from its wide usage domestically, this family of tiltrotors has been deployed in numerous missions overseas including casualty evacuation, tactical recovery of aircraft and personnel, humanitarian assistance/disaster relief, resupply, VIP transport along with theater security cooperation.

Our View

Increasing terrorist attacks across the globe along with the widespread rise of ISIS have compelled nations to strengthen arsenal and bump up the defense budget in recent times. 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 U.S. fiscal 2019 defense budget worth $716 billion further supports this fact. The financial plan 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 are expected to 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.

We expect such contract inflows to further boost the performance of these two defense contractors and bolster their respective profit margins in the near term.

Price Performance

In a year’s time, shares of Boeing have gained about 10.1% against the industry’s 3.6% decline. The outperformance can be attributed to the company’s record backlog that supported revenue growth, increased orders for commercial airplanes, and expanded presence in domestic as well as international markets.

 

Meanwhile, Textron, a Zacks Rank #4 (Sell) stock, has lost 16.3% in a year, wider than the industry’s 3.6% decline. The underperformance can be contributed to intensifying competition that the company faces in the defense space.

Zacks Rank & Other Stocks to Consider

Boeing currently sports a Zacks Rank #1 (Strong Buy). Some other top-ranked companies in the same sector are AeroVironment, Inc. AVAV and Heico Corp. HEI. While AeroVironment sports a Zacks Rank #1, Heico has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AeroVironment delivered average positive earnings surprise of 257.01% in the last four quarters. The Zacks Consensus Estimate for fiscal 2019 earnings has moved 33.3% north to $1.48 over the past 90 days.

Heico’s estimated long-term earnings growth rate currently stands at 12.10%. The Zacks Consensus Estimate for the company’s earnings in 2019 has climbed 4% to $2.08 over the past 90 days.

Zacks' Top 10 Stocks for 2019

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