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Boeing Wins $193M FMS Deal to Build Small Diameter Bomb


The Boeing Co.’s BA Defense, Space and Security unit recently secured a modification contract worth $193.6 million for the production of Increment 1, Lots 12-14 Small Diameter Bomb (SDB). Per the terms of the deal, the company will purchase an additional quantity of 6,000 SDBs.

Details of the Deal

The contract was awarded by the Air Force Life Cycle Management Center, Eglin Air Force Base, Florida. Work related to the deal will be carried out in St. Louis, MO and is scheduled to be over by Dec 30, 2020.

The contract involves foreign military sales to Saudi Arabia, Japan, Israel, the Netherlands, South Korea and Singapore. Boeing will utilize fiscal 2015 and 2016 missile procurement and foreign military sales funds to complete the task.

A Brief Note on SDB

Boeing’s SDB is the next generation of low-cost and low collateral-damage precision strike weapons for internal and external carriage. It comes with a range greater than 60 nautical miles. The SDB carriage allows four weapons to be carried in one aircraft weapon station.

SDBs are 250-pound class bombs that allow the artillery system to hit targets from significantly longer distances and engage hard-to-reach targets, while maintaining the SDB’s flight maneuverability and accuracy.

Currently, SDB is employed externally on F-15E, F-16 Block 30/40/50, Gripen and GR4 Tornado smart stations and is internally, integrated in the bays of the F-22A, F-35A, and Unmanned Combat Air Vehicles.

Our View

Boeing’s SDB is also one of the very few weapon systems of its kind in the market. Being one of the largest defense contractors in the United States, the company serves the U.S. aerospace and defense industry and its allies by producing, integrating and supporting precise, long-range and focused munitions capabilities. Currently, the demand for SDB is huge, given the fact that apart from the United States, eight foreign allies of the country use this precision weapon.

With more nations bumping up their defense spending, Boeing consistently enjoys big order flow from the international market for advanced arsenal like SDB. Toward this end, the company won a FMS contract worth $700 million for SDB production.

Notably, the Defense, Space & Security segment saw a sales decline in the third quarter of 2017. We believe strong order flow for weapons at this segment, like the latest contract, will allow the company to bounce back to positive sales growth for its defense business.

Price Movement

Boeing’s stock has moved up about 86.9% in a year, compared with the broader industry’s gain of 43%. The outperformance was primarily led by significant demand for its military jets along with long-term robust demand for its commercial aircraft.

Zacks Rank & Key Picks

Boeing carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the same sector are Curtiss-Wright Corporation CW, Leidos Holdings, Inc. LDOS and Huntington Ingalls Industries, Inc. HII, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Curtiss-Wright posted an average positive earnings surprise of 11.78% in the past four quarters. The Zacks Consensus Estimate for current-quarter earnings rose by 22 cents over the last 90 days.

Leidos Holdings has an average positive earnings surprise of 14.81% for the past four quarters. The Zacks Consensus Estimate for current-year earnings has risen by 15 cents in the last 90 days.

Huntington Ingalls posted an average positive earnings surprise of 14.22% over the last four quarters. The Zacks Consensus Estimate for current-year earnings moved up 56 cents over the past 90 days.

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