The Boeing Company BA recently secured a modification contract to procure new-build Apache AH 64E helicopters. Work related to the deal is scheduled to be completed by Dec 31, 2022.
Valued at $154.9 million, the contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, Alabama. Boeing will carry out the task in Mesa, AZ.
A Brief Note on AH-64
Boeing’s AH-64 Apache is the world’s most advanced multi-role combat helicopter. It is used by the U.S. Army and increasing number of international defense forces. Notably, AH-64E is the latest version of the AH-64 gunship, equipped with new sensors, avionics and improved night operation capabilities. It also has infra-red suppressing exhaust system as well as chaff and flare dispensers, which together lowers the chances of being hit by enemy air defense missiles.
Rationale Behind the Deal
Over the last couple of years, the U.S. Aerospace and Defense space has been witnessing a solid growth, courtesy of President Trump’s decision to discard his predecessor’s budget sequestration policy. This, in turn, ushered in a golden era for prominent defense contractors like Boeing, which have been witnessing a decent uptick in order growth for their valued military weapons ever since.
Additionally, rising geopolitical tensions across the globe, America’s rocky cross border relationship with North Korea as well as its hostile stance toward Russia have been consistently contributing solid impetus to growth of the U.S. defense stocks.
In the wake of such developments, the United States has significantly enhanced its surveillance and the combat-proven helicopters play a crucial role in it. In this regard, Boeing’s contribution toward strengthening the nation’s aerospace surveillance system is worth mentioning. Notably, the company’s defense unit manufactures military helicopters besides offering a wide variety of related technical expertise, system upgrades and maintenance services. Such expertise must have allowed the company to win contracts like the latest one.
Per a report by MarketWatch, the global military helicopter market is expected to witness a CAGR of 8.4% from 2018 to 2023. Such growth can be attributed to the need for replacing aging fleets and enhancement of capabilities pertaining to disaster relief operations.
Also, increasing geopolitical tensions across the world have prompted developing nations to effectively increase their defense budget. As a result, the profit margin of prominent helicopter-makers like Boeing, Lockheed Martin LMT and Textron TXT is anticipated to expand in the coming days.
In a year’s time, shares of Boeing have lost 6.2% against the industry’s 3.4% growth.
Zacks Rank & Key Pick
Boeing currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Aerojet Rocketdyne Holdings, Inc. AJRD, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Aerojet Rocketdyne delivered average positive earnings surprise of 25.46% in the trailing four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 13.8% to $1.90 over the past 90 days.
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