Bell-Boeing JV Wins Navy Deal to Boost V-22 Tiltrotor Program

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 to procure 60 MV-22 Proprotor Hub spring and drive link kits. The JV will also procure 10 CV-22 Proprotor Hub spring, and drive link kits and six CV-22 Hub Spring Mod spare kits. Work related to the deal is scheduled to be completed by March 2021.

Under the agreement, the JV will acquire 12 interim spare drive links, three interim spare hub springs, and nine proprotor hub spring, and drive link kits for the Japanese government as well.   

Valued at $18.7 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. The deal will serve the U.S. Air Force and Marine Corps apart from the Japanese administration. The JV will carry out the tasks in Amarillo, TX.

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. MV-22 and CV-22 are two variants of the V-22 family of jets.

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 12.3% against the industry’s 5.6% decline.

Meanwhile, Textron has lost 14.2%, wider than the industry’s decline in the same time frame.

Zacks Rank & Other Stocks to Consider

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

AeroVironment delivered average positive earnings surprise of 294.51% 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 delivered average positive earnings surprise of 4.80% in the last four quarters. The Zacks Consensus Estimate for the company’s earnings in fiscal 2019 has climbed 2.9% to $2.14 over the past 60 days.

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