Boeing Gets Military Save Amidst Struggles

F-15EX fighter jet to offset 737 MAX cancellations

Author's Avatar
Jul 14, 2020
Article's Main Image

Boeing Co. (BA, Financial) saw its price per share rise on July 14 thanks to a newly secured contract with the Department of the Air Force. Shares were up 0.35% despite recently published struggles with cancellations of orders for the 737 MAX.

The new contract with the Air Force secured Boeing with $1.2 billion to supply the next evolution in the F-15 fighter jet series known as the F-15EX. Eight F-15EX aircraft were approved in the Air Force’s 2020 fiscal budget, with an additional 12 aircraft requested for the 2021 budget.

Over the next five years, the Air Force plans to purchase a total of 76 F-15EX aircraft through the Future Years Defense Program. The contract provides for the design, development, integration, manufacturing, test, verification, certification, delivery, sustainment and modification of F-15EX aircraft, including spares, support equipment, training materials, technical data and technical support. It is estimated that it will total around $23 billion dollars by the time all planes are delivered.

Boeing

Boeing is the world's largest aerospace and defense company. With headquarters in Chicago, it operates in four segments: commercial airplanes, defense, space and security, global services and Boeing capital. Boeing's commercial airplanes segment produces about 60% of sales and two-thirds of operating profit, and it competes with Airbus (XPAR:AIR, Financial) in the production of aircraft, ranging from 130 seats upwards. Boeing's defense, space and security segment competes with Lockheed (LMT, Financial), Northrop (NOC, Financial) and several other companies to create military aircraft and weaponry.

On July 14, Boeing was trading at $179.06 per share with a market cap of $102.90 billion. The Peter Lynch chart shows that Boeing was trading slightly above its intrinsic value before the end of 2019, when it became overvalued.

6d6a2a5b850f62df461663318c58b7e3.png

GuruFocus gives the company a financial strength rating of 3 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 3 out of 10. The company’s cash-to-debt ratio of 0.4 places it lower than 56.15% of the aerospace and defense industry. The company currently shows seven severe warning signs alongside the issuance of new debt.

35e27a5c9b6283eadad614bfeb546d49.png

While it was well known that negotiations were in the works to finalize the Air Force’s yearly budget, the contract for Boeing came on the heels of concerns with their passenger planes. According to The Wall Street Journal, American Airlines (AAL, Financial) is set to cancel many of their orders for the 737 MAX.

The cancellations arose out of the continual struggles that the 737 MAX has seen since several fatal crashes last year led the Federal Aviation Administration to ground the plane. While Boeing has resumed manufacturing the aircraft, it has still yet to regain flight approval despite the integration of revised maneuvering software.

Disclaimer: Author owns no stocks mentioned.

Read more here:

Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.