Thursday, June 24, 2010

Boeing Wins Another Contract

The U.S. Air Force awarded Boeing Company (BA: 67.50 +0.05 +0.07%) a contract worth $216 million to upgrade the 59-jet KC-10 tanker fleet with a new communication, navigation, surveillance and air traffic management (CNS/ATM) system. The duration of the contract is five years.
Armed with the upgrade, the fleet will be able to comply with the expected 2015 CNS/ATM Federal Aviation Administration/International Civil Aviation Organization standards. This modified system will allow shared access in the civil and military airspace, enabling tanker refueling operations worldwide.
The new improved system will lower operational costs and increase pilot safety and mission effectiveness. It will enable the Air Force to obtain precise communication of flight data and direct flight routing, which is essential given the ever increasing air traffic.
The design and development work will be carried out by Boeing’s business unit Boeing Defense, Space & Security and Boeing Commercial Airplanes. Boeing will utilize its Long Beach California Facility for managing the contract. The company expects to modify and test fly the first airplane from its San Antonio Facility in 2012. Boeing expects to deliver all the updated and modified KC-10 to the Air Force by 2015.          
During the first-quarter call, Boeing provided a revenue guidance of $64 billion to $66 billion and earnings per share in the range of $3.50 to $3.80. The company continues to expect higher 2011 revenues than 2010, primarily driven by projected deliveries of 787 and 747-8. The Zacks Consensus Estimate for 2010 is $3.86 per share and for 2011 is $4.90 per share.
We appreciate Boeing’s ability to consistently win defense contracts; a recent one being the $25 million Navy contract. Another positive development of late was the hike in the production rate of the Next-Generation 737 in anticipation of higher demand for the airplanes stemming from a steadily recovering economy.
We believe Boeing is among the best-positioned companies in its sector due to its balanced exposure to commercial aircraft and defense equipment. However, we retain a Neutral rating and have a Zacks #3 Rank (’hold’) on the stock as most of the positives are already priced in the current valuation, leaving very little room for upside in the near term.
Based in Chicago, Boeing Company designs and produces commercial airplanes, defense systems and civil and defense space systems. The major competitors of the company are General Dynamics Corp. (GD: 63.96 -0.93 -1.43%), Lockheed Martin Corporation (LMT: 79.07 -0.62 -0.78%) and Northrop Grumman Corporation (NOC: 59.28 -0.65 -1.08%).

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