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Boeing Looks to Top Competitors for Military Contract

Boeing's F-15. Photo Credit: Boeing.

Recent headlines for Boeing (NYSE: BA  ) haven't been very positive, especially when it comes to the company's 787 Dreamliner, which has turned into a nightmare. Fortunately for investors, the battery issues and grounded 787s didn't stop Boeing's stock price from soaring – up nearly 40% this year alone. Finally Boeing is making headlines for something investors can be happy about.

According to analysts from Sterne Agee, reports from a leading South Korean newspaper wrote that Boeing was the only remaining bidder for South Korea's $7.4 billion fighter aircraft program. Nothing will be officially awarded until mid-September, but multiple reports are saying that Boeing is in line to win the contract because it was the only offer that remains under the initial budget. 

This would be a huge boost for the company's defense division and the $7.4 billion contract would equal nearly half of Boeing's military aircraft revenues from last year. The contract is one of the largest available in defense and would be the latest win over rivals EADS and Lockheed Martin (NYSE: LMT  ) .

The contract would call for Boeing to supply 60 of its F-15 fighter aircraft, a huge improvement on its sales compared to last year. Consider that in the first half of 2012 Boeing delivered just eight F-15s, and in the first six months of this year Boeing delivered only three.

While this potential short-term military contract is a nice catalyst for investors, there's more good stuff in Boeing's long-term commercial story that should reward investors.

Commercial aviation looks to be a long-term growth story as airlines in developed markets replace existing fleets and demand in emerging markets increases. Boeing estimates that demand for its commercial aircraft will hit 35,000 units, worth roughly $4.8 trillion over the next two decades – a huge amount. 

One of the most intriguing reasons to own shares of Boeing is its enormous $410 billion backlog which is more than four times its 2013 sales estimate. That's huge for investors wanting revenue stability in the event of a market downturn – Boeing will still have plenty of secured production and sales.

Bottom line
As the nasty headlines from the 787 Dreamliner saga continue to fade, Boeing is a valuable investment for multiple reasons. Its future growth looks promising and its huge backlog provides a secure revenue stream during a downturn. It also has a small competitive advantage due to the high barriers of entry into the aviation industry. Boeing also plans to ramp up production rates for its 737, 777, and 787 models which will help offset margin loss from cost overruns on its 787 Dreamliner. Short-term wins, like the potential military contract from South Korea, are a nice catalyst for Boeing, but really the long-term looks even more promising for investors.

With the American markets reaching new highs, investors and pundits alike are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!

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Related Tickers

9/30/2016 4:01 PM
BA $131.74 Up +0.71 +0.54%
Boeing CAPS Rating: ****
LMT $239.72 Down -2.62 -1.08%
Lockheed Martin CAPS Rating: ****