The Boeing Co. (BA) will receive orders to supply 10 American C-17 military aircraft to India for a contract value of $4.1 billion. This order exceeds the deal to supply eight Boeing P-8I long-range maritime reconnaissance aircraft for $2.1 billion in 2009, the largest order so far.
The C-17 is a large defense transport aircraft, which can airlift tanks, supplies and troops as well as perform medical evacuations.
Earlier Boeing and Lockheed Martin Corporation (LMT) were rejected in a deal to supply 126 fighter jets for the Indian Air Force for a contract value of $11 billion.
Boeing is now looking towards the Asian and Mid-East defense markets for growth in an effort to counter domestic defense budgetary pressure as well as offset the shortfall in orders stemming from the austerity drive of the European countries and the U.S.
Two big Asian players, China and India, have increased their defense budgets for 2011. India has decided to spur its defense spending for 2011 by 11.6% to $36.3 billion. India is also expected to expend approximately $80 million in upgrading its military over the next decade.
This approval to supply the aircraft strengthens Boeing’s plans to entrench its presence in India and enter into profitable partnerships, as contracts from India can generate $31 billion in defense revenue for Boeing in the coming decade.
Boeing reported first quarter earnings of 78 cents per share, beating both the Zacks Consensus Estimate of 71 cents and year-ago earnings of 70 cents. The upside in earnings came from higher military aircraft earnings which offset declines in the commercial airplanes business.
The company, in its earnings conference call reaffirmed its fiscal 2011 revenue guidance in the range $68 billion – $71 billion, of which $31.5 – $33 billion is expected to come from defense contracts. Earnings guidance range for fiscal 2011 is also reaffirmed at $3.80 – $4.00 per share.
The Zacks Consensus Estimate for second-quarter 2011 is 93 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $4.12 per share and $5.35 per share.
We maintain our Neutral recommendation on Boeing. The quantitative Zacks #3 Rank (short-term Neutral rating) for the company indicates no clear directional pressure on the stock over the near term.
Based in Chicago, The Boeing Company designs and produces commercial airplanes, defense systems and civil and defense space systems.
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