Military arms-maker Textron (TXT 3.22%) may have just won an $80 billion contract from the U.S. Army. To be more precise, Textron definitely won the contract. It's just not 100% certain yet how much that contract is worth.

But $80 billion is definitely a possibility.

Uncle Sam wants Textron to build it a Black Hawk replacement

This story begins nearly a decade ago, when the U.S. Army announced a "Joint Multi-Role Technology Demonstrator" program to see which defense contractor could come up with the best solution to replace its aging fleet of UH-60 Black Hawk helicopters.  

Introduced into service in 1979, the UH-60 (and its variants such as the Navy's SH-60 and Air Force's HH-60) are hands down the world's most popular military helicopters. Around the world, nearly 4,000 Black Hawks (and their cousins) are in service -- 40% more than the runner up, Russia's Mi-8 Hip, according to data from Flight Global's 2023 World Air Forces report.  

The U.S. Army alone flies more than 2,300 Black Hawks (and has more than 300 more on order from its manufacturer, Lockheed Martin). The U.S. Air Force and Navy combined own 600 more -- and all of these helicopters will have to be replaced at some point in the future. And so, foreseeing this need, the Pentagon asked contractors what they could come up with to do that.

The competition quickly whittled down to two main contenders. In a curious case of strange bedfellows, Lockheed partnered with its archrival Boeing to offer the Army an upgraded helo with counter-rotating rotors, dubbed Defiant X. Textron countered by offering the Army its Bell V-280 Valor tiltrotor aircraft (similar to the V-22 Ospreys that Textron builds with Boeing). The aircraft boasts an estimated top flying speed of 350 miles per hour (100 miles faster than the Black Hawk), and range more twice that of the Black Hawk (800 nautical miles), with 25% greater cargo capacity.  

And Textron won.

To the Valor go the spoils

Textron's Valor contract begins with a $232 million award, growing to $1.36 billion by 2031, to complete development of the aircraft as the Army's new "Future Long Range Assault Aircraft weapon system." But even that is only the beginning. Once development is complete, Textron will begin building the V-280 Valor -- and selling it to the Army.  

And how much might that be worth to Textron?

Until the company puts a price tag on the finished product, that's hard to say. Aerospace and defense research firm Seaport Research Partners, however, estimates the lifetime value of Textron's Valor contract at $80 billion, or roughly $20 million per unit across a fleet of 4,000 aircraft. (This could actually prove a conservative figure. Current Government Accountability Office estimates for the first two Valors to be built for the program price them at $55 million apiece.)    

Even if Textron gets "only" $80 billion, however, this is a huge win for Textron, whose entire market capitalization tops out at just $15 billion -- roughly 7 times smaller than either Lockheed or Boeing.

What it means for investors

With so much money on the line, there's a good chance that Boeing and Lockheed will protest Valor's award to Textron, and try to get the GAO to reverse the Pentagon's decision and award the contract to them. Investors, however, should hope that any such protest is rejected.

Here's why: If Boeing and Lockheed somehow manage to overturn Textron's contract, investors' only real way to play this situation would be to buy Boeing stock at 1.7 times trailing sales, or Lockheed's at 2 times sales -- both very expensive valuations for defense stocks. In contrast, if Textron retains and executes on this contract, investors can buy into a defense company with huge revenue growth prospects -- and a price-to-sales ratio of only 1.3.

That's a much more attractive proposition, in my opinion.

Textron looks similarly cheaper than either Boeing or Lockheed on both a price-to-earnings basis (Textron costs less than 17 times forward earnings, Lockheed costs 18 times, and Boeing 47 times!) and on price-to-book value as well. Long story short, Textron offers investors a much better chance of profiting from this defense contract than either of the larger defense contractors would offer, should they manage to win back the contract.

Not only is Textron the winner of this contract, but Textron stock looks like a winner for investors as well.