Boeing Wins Defense Research Contract - Analyst Blog

Aerospace and defense major The Boeing Company BA won a contract worth $30.7 million from the U.S. Defense Advanced Research Projects Agency (DARPA).

Per the cost-plus-fixed-fee contract, Boeing will support DARPA's Airborne Launch Assist Space Access (ALASA) program. The major part (53%) of the work will be done at its Huntington Beach, CA facility. The company expects to complete the program by Feb 20, 2015.

The U.S. DARPA expects to spend around $800.0 million on space programs over the 2015-2018 time frame including the $55.0 million earmarked for the ALASA program. The ultimate objective of this program is to assist the defense agency to field a system to launch satellites weighing 45 kilogram (100 pound) into low Earth orbit for $1 million each. Primarily, the idea is to develop a system which will lower the cost of launching smaller satellites in the lower orbit.  

The U.S. defense majors are heavily dependent on the U.S. defense budget, as it is their primary source of revenue generation. The $1.1 trillion Omnibus spending bill signed by President Obama was a big relief for the Pentagon. The bill provides Pentagon with nearly $93 billion to buy weapons and another $63 billion for research and development.

During the fourth quarter 2013 earnings release, Boeing provided its defense revenue target of $30.0 billion to $31.0 billion and an operating margin of approximately 9.5% for 2014. We believe Boeing's diversified product portfolio and ability to win consistent contracts will enable it to meet its 2014 guidance. Significant recent contracts for Boeing include a reward of $1.16 billion from the Pentagon won earlier this month to supply the U.S. Army with AH-64E Apache helicopters.  

Boeing currently has a Zacks Rank #3 (Hold). Other better-ranked players in the aerospace/defense sector include Wesco Aircraft Holdings, Inc. WAIR, Huntington Ingalls Industries, Inc. HII and Northrop Grumman Corporation NOC. While Wesco Aircraft Holdings and Huntington Ingalls carry a Zacks Rank #1 (Strong Buy), Northrop Grumman Corporation holds a Zacks Rank #2 (Buy).