Dj Boeing Stock Keeps Dropping. Here's Why - And How Low It Could Go. - Barrons.Com

Bell-Boeing— a joint venture (JV) between The Boeing Company BA and Bell Helicopter, an unit of Textron Inc. TXT — recently secured a contract involving the CMV-22 Osprey aircraft. The Naval Air Systems Command, Patuxent River, MD, has awarded the deal.

Details of the Deal

Valued at $18.7 million, the contract is expected to be completed by November 2029. Per the terms of the deal, Bell-Boeing will be engaged in offering research, development, test, evaluation, program management and engineering support for integrated aircraft survivability equipment of the CMV-22 Osprey jets. The majority of the work related to this contract will be executed in Ridley Park, PA.

What’s Favoring BA & TXT?

With rising global defense spending rising amid growing hostilities, investment in advanced defense products, including military aviation jets, has also been increasing. These jets serve a nation in military operations and other crucial missions such as troop transportation as well as shipping cargo and other essential supplies.

With Boeing and Textron being prominent manufacturers of renowned, combat-proven aircraft across the globe, jets from their product portfolios enjoy solid demand when it comes to crucial air warfare missions. The latest contract win is an example of that.

Bell-Boeing’s primary product, V-22 Osprey, is a family of multi-mission, tiltrotor military aircraft with both vertical as well as short takeoff and landing capabilities. It is designed to combine the functionality of a conventional helicopter with the long-range, high-speed cruise performance of a turboprop aircraft. Notably, the CMV-22 is a variant of the V-22 family of jets that serves the U.S. Navy and can carry 6,000 pounds of cargo and operate from ship or shore.

These features of the V-22 family of jets and the growing demand for military aircraft are likely to have been ushering in notable contracts for BA and TXT, like the latest one.

Growth Opportunities for BA and TXT

Rising military conflicts, terrorism and border disputes, along with rapid technological advancements in military jets, have led nations to increase their defense spending on combat-proven jets, which constitute an integral part of their defense structure.

This is likely to have prompted Mordor Intelligence to forecast a compound annual growth rate of 5.23% for the global military aviation market during the 2024-2030 time period.

Such solid market prospects offer growth opportunities for Boeing and Textron. Notably, Boeing’s portfolio includes well-established combat jets like the EA-18G Growler, MH-139A Grey Wolf and C-17 Globemaster III. On the other hand, Textron’s Bell unit’s portfolio includes jets like Future Vertical Lift Bell V-280 and Bell 360.

Opportunities for Peers

Other defense companies that are expected to enjoy the perks of the expanding global military aviation market have been discussed below.

Lockheed Martin Corporation LMT: It is the manufacturer of some of the most advanced military jets in the world. Its key jet programs include the F-35 Lightning II, F-22 Raptor, F-16 Fighting Falcon and C-130 Hercules.

Lockheed has a long-term earnings growth rate of 4.5%. The Zacks Consensus Estimate for LMT’s 2024 sales indicates year-over-year growth of 5.3%.

Northrop Grumman Corporation NOC: It is a leading provider of proven manned and unmanned air systems. It builds some of the world’s most advanced aircraft like the B-2 Spirit Stealth Bomber, A-10 Thunderbolt II and B-21 Raider.

Northrop Gruman has a long-term earnings growth rate of 19.1%. The consensus estimate for NOC’s 2024 sales indicates year-over-year growth of 5.3%.

BA & TXT’s Stock Price Movement

Shares of BA and TXT have lost 20.7% and 0.3%, respectively, in the past three months compared with the industry’s 4.3% decline.

BA & TXT’s Zacks Rank

Both BA and TXT currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research

Dallas, TX-based airline heavyweight Southwest Airlines Co. (LUV) has been benefiting from improvements in air travel demand, consistent shareholder-friendly initiatives, cost-cutting measures and fleet modernization techniques. The decline in oil prices bodes well for bottom-line growth of airline stocks, and it is no different for Southwest Airlines.

The positive sentiment surrounding the stock is evident from the fact that the Zacks Consensus Estimate for LUV's earnings has been revised upward in the past 90 days.

Let’s delve deeper.

Upbeat Air Travel Demand: A Major Tailwind

Improvement in air-travel demand, following the end of the pandemic and normalization of economic activities, bodes well for Southwest Airlines’ top line. Driven by the air travel demand strength, LUV’s top line increased 6.7% year over year in the first nine months of 2024. This uptick was due to a 7.2% rise in passenger revenues.

Given that travel demand remains healthy, LUV anticipates fourth-quarter 2024 unit revenues or revenue per available seat mile (RASM) to increase 3.5-5.5% on a year-over-year basis. The upside shows that LUV is benefiting from its revenue management actions, which include network optimization and capacity moderation, marketing and distribution evolution. As a result, LUV is focusing on improving yields from its best-performing flights. The fourth-quarter 2024 RASM guidance indicates an improvement from the year-ago quarter’s figure.

Some Other Tailwinds Working in Favor of LUV Stock

LUV’s cost-saving initiatives (which include minimizing hiring, optimizing scheduling, improving corporate efficiency and capitalizing on supply-chain opportunities) are expected to generate $500 million in run-rate cost savings in 2027. LUV’s fleet modernization initiatives are also encouraging.

Meanwhile, a decline in oil prices (due to multiple geo-political reasons) should boost the company’s bottom line, as fuel expenses represent a key input cost for any transportation player.Fuel cost per gallon (including fuel tax: economic) fell 8.3% to $2.55 in the third quarter of 2024. For the fourth quarter, oil prices are expected to be in the range of $2.25-$2.35, down sequentially as well as on a year-over-year basis.

On a shareholder-friendly note, under the $2.5 billion share repurchase program authorized by LUV’s board of directors in September 2024, LUV plans to launch an initial $250 million accelerated share repurchase (ASR) program as early as possible (fourth-quarter 2024 ASR program). Apart from share buybacks, LUV has returned $431 million to its shareholders through dividend payments during the first nine months of 2024. With the quarterly dividend of 18 cents per share (annualized 72 cents per share), LUV's dividend yield is currently pegged at 2.27%. Such shareholder-friendly moves indicate the company’s commitment to creating value for shareholders and underline its confidence in its business.

LUV’s Price Performance Soars High

LUV has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed the mark in the other, delivering an average surprise of 111.62%. Driven by this upbeat earnings performance and the positives mentioned above, LUV’s shares have risen 22% over the past three months, outperforming its industry as well as the S&P 500, of which the company is a key member.

However, LUV’s price performance in the same time frame compares unfavorably with that of fellow U.S. airline operators like JetBlue Airways Corporation JBLU and Alaska Air Group ALK.

Three-Month Price Comparison

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Meta Platforms stock has also looked shaky since Trump’s election. In this article, we’ll see what a Trump presidency with Tesla CEO Elon Musk as one of his key lieutenants means for Meta stock.