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Boeing (BA) Completes Acquisition of KLX Aerospace Solution


The Boeing Company BA recently announced that it has closed the acquisition of KLX Aerospace Solutions Inc. — a subsidiary of KLX Inc. KLXI. The buyout will widen the product and services offered by Boeing and would create significant value for its customers as a one-stop solution.

Through the acquisition, Boeing will further boost its commercial and military aircraft services. Per Boeing’s latest Commercial Market Outlook (CMO), the world will need 42,730 new planes, worth $6.35 trillion, between 2018 and 2037. Such solid demand will boost the aviation services market.

To this end, Boeing expects commercial aviation services market to grow 4.2% annually, over the next 20 years. Also, the acquisition will help Boeing to enhance its military aircraft services and parts distribution and supply chain services.

Details of the Deal

The deal was originally announced by Boeing in May 1, 2018. The transaction value came in at $4.25 billion, which comprises an all-cash payment of $63 per share coupled with $1 billion of net debt. Though the acquisition’s impact on earnings will be neutral through 2019, Boeing anticipates growth thereafter, with annual cost savings of nearly $70 million by 2021.

The acquisition will allow Boeing to serve its existing and potential customers better and increase its scope of services. As the KLX markets and distributes products for nearly 2,400 manufacturers and offers approximately 1 million catalog items.

Boeing is poised to benefit from the acquisition as it makes the company more competitive in the aerospace service market. Also, the deal supplements the company’s organic growth strategy.

What Lies Ahead for Boeing?

President Trump had proposed Pentagon fiscal 2019 defense budget in February 2018 that provisioned investments of $717 billion for rebuilding the U.S. military into a more capable, lethal and geared up Joint Force.

Boeing is the largest aircraft manufacturer in the United States. Per the fiscal 2019 budget proposal, the major investments have been proposed as $3 billion in 15 KC-46 Tanker Replacements, $2 billion for procuring 24 F/A-18E/F, $1.3 billion for 60 AH-64E Attack Helicopters and $2.2 billion for 10 P-8A jets. Notably, maximum of the budget provision for aircraft products was allotted for Boeing’s products, which is expected to boost the top line of Boeing going forward.

Considering the huge global demand for commercial jets, Boeing has been enjoying an enormous flow of orders from all over the world. Asia-Pacific region has lately emerged as a primary market for commercial jets driven by the enormous demand for new aircraft with China and India leading this space. Considering China with a market value worth $1.1 trillion for new commercial airplanes, single-aisle jets being the biggest demand driver, Boeing has established a 737 completions and delivery center in the country. Also, India appears to be another promising market for Boeing as the country is expected to become the world’s fastest growing aviation market.

Price Performance

Shares of Boeing have rallied about 40.1% in a year compared with the industry’s growth of 16.8%.

Zacks Rank & Key Picks

Boeing currently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the same sector are AeroVironment, Inc. AVAV, and American Outdoor Brands Corporation AOBC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AeroVironment pulled off an average earnings surprise of 365.27% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings has moved 22.5% upward to $1.36 over the past 60 days.

American Outdoor Brands came up with an average positive surprise of 65.71% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has been revised 24.1% upward to 67 cents over the past 60 days.

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