The Boeing Co. (BA) has something to cheer about this holiday season as the new omnibus spending bill, released late Tuesday, provided the company a $1.46 billion fund for attack jets.
Negotiators from both the House and Senate agreed on a $1.01 trillion spending bill that will fund most of the government through the end of Sep 2015.
The new bill includes $554.2 billion for the Pentagon’s base appropriation and $64 billion for Overseas Contingency Operations (“OCO”) funding. This also includes $112 million for a response to the Ebola crisis.
Under the new military budget, Boeing will secure $1.46 billion for 15 EA-18G Growler attack jets. The production line for EA-18G Growlers was due to end in 2016. The added funding, which was approved in both the House and Senate appropriations bills, will help to extend the production line into 2017.
Boeing also received additional funding of $341 million for upgrades of up to 12 AH-64 Apache helicopters.
Apart from Boeing, the prime defense contractor, Lockheed Martin Corp. (LMT), will also receive $224 million for two additional F-35 Lightning II Joint Strike Fighter (“JSF”) jets for the Air Force. Lockheed Martin will also get $255 million for two more F-35s for the Navy, bringing the total to 38 F-35 fighters for fiscal 2015. This compares with 29 F-35 fighter jets in fiscal 2014.
The F-35 has been regarded as the most expensive weapons program of the U.S. Department of Defense (“DoD”). The F-35 Lightning II JSF is the 5th Generation stealth fighter combining radar evading stealth, supersonic speed and extreme agility with the most powerful and wide-ranging integrated sensor package of any fighter aircraft in history.
Budget austerities remain an overhang on the military sector. Though revenues have admittedly been soft in the recently reported quarter for most of the defense majors, the sector enjoyed an overall robust earnings season on the back of technological progress, accretive acquisitions and cost-cutting efforts. This spending bill will help the defense primes of the likes of Lockheed Martin and Boeing to keep their top line ticking this fiscal.
Besides Boeing’s flourishing commercial airplanes business, it is also one of the major players in the defense arena. Boeing’s defense business stands out among its peers by virtue of its broadly diversified programs, strong order bookings and order backlog. Its commercial supremacy also provides extensive support in a droopy defense scenario.
For 2014, the company expects its defense revenue to be in the range of $30 billion to $31 billion with an operating margin of approximately 9.5%.
Zacks Rank
Boeing carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include General Dynamics Corp. (GD) and Spirit AeroSystems Holdings, Inc. (SPR). While Spirit AeroSystems sports a Zacks Rank #1 (Strong Buy), General Dynamics holds a Zacks Rank #2 (Buy).
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