Boeing's (BA) Unit Wins $475M Deal to Support MEUAS Program

Insitu Inc., a subsidiary of aerospace giant The Boeing Co. BA, recently secured a contract to provide intelligence, surveillance and reconnaissance ISR services in support of the Mid-Endurance Unmanned Aircraft Systems (MEUAS) program, at multiple locations across the globe. Work related to the deal is scheduled to be over by Jun 2022.

Valued at $475 million, the contract was awarded by the U.S. Special Operations Command (USSOCOM), Tampa, FL. This multiple-award agreement includes a 54-month period of performance, with four 12-month ordering periods followed by one six-month ordering period. The contract will utilize fiscal 2017 operations and maintenance funds.

A Brief Note on Boeing's Unmanned Aircraft Systems (UAS)

Boeing's Insitu provides high-performance, low-cost UAS used for ISR. One of its well-known products is the long-endurance autonomous unmanned vehicle named ScanEagle. It is based on Insitu's Seascan miniature robotic aircraft.

As a standard payload ScanEagle carries either an inertially stabilized electro-optical or an infrared camera, it allows the operator to easily track both stationary and moving targets, providing real-time intelligence. Capable of flying above 16,000 feet, the UAS also provides persistent low-altitude reconnaissance.

Apart from being used by the U.S. Navy and Marine Corps, ScanEagle has also been adopted by the First Marine Expeditionary Force in Iraq as well as the UK Ministry of Defence's Joint UAV Experimentation Programme (JUEP). Integrator is another UAS of the company that carries custom payloads for ISR.

Our View

With terrorist threats increasing each day across the globe, the demand for UAS has risen. This is because when sustained endurance efforts are required, unmanned aircraft provide superior capabilities. Also physical infrastructure limitations sometimes prohibit the use of manned rotary or fixed-winged aircraft.

In the U.S.,the primary purpose of domestic UAS operations is to provide realistic training experience, test equipment and tactics to the Department of Defense (DoD) forces in preparation for potential overseas warfighting missions along with helping in Defense Support of Civilian Authorities (DSCA) training and exercises.

While defense biggies like Boeing are already gaining accelerated traction under the rule of President Trump, the proposed base budget appropriations of Mar 2017 that sought to invest $13.5 billion in various military artilleries including UAS, surely added further impetus to the company's growth trajectory. We believe that the aforementioned contract reflects increased attention of the U.S. government toward strengthening its UAS, as well as a positive indication that the budget appropriation may get approved in the days ahead.

Price Performance

Shares of Boeing have rallied 41.4% over the last 12 months, outperforming the Zacks categorized Aerospace–Defense industry's gain of 22.5%. This could be because the company's strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, ongoing share repurchases and earnings accretive acquisitions. In addition, the company poses strong competition to peers like Lockheed Martin Corp. LMT, General Dynamics Corp. GD and Huntington Ingalls Industries, Inc. HII.

Zacks Rank

Boeing currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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