Update Boeing (BA)

02/25/2011 3:46 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

And the winner is, surprise! Boeing (BA)

After the New York stock market closed yesterday, February 24, the Pentagon announced that Boeing had defeated its arch competitor European Aeronautic, Defense & Space (EADS), the parent of Airbus, and won the contract to build the next generation of Air Force tanker planes. The contract is valued at a total of about $30 billion.

Many Wall Street analysts had expected that the U.S. Department of Defense would award the troubled contract to the European company or at least split the contract between the two companies. Boeing’s original contract win in 2004 had been wiped out in a scandal involving a job offer to a Pentagon official involved in the contract award process. Then an Airbus win in 2008 was over turned by a Boeing protest. Members of Congress from Kansas and Washington State had geared up before the decision to protest an expected Boeing defeat.

It’s unlikely that the contract will bring Boeing much in the way of profit since both companies had cut their bids to the bone in an attempt to win the award. But Boeing would have taken a big hit to company reputation and morale if it had lost the refueling tanker program that it has held since 1948. (And this hasn’t been the greatest of times for Boeing as it attempts to get its frequently delayed 787 Dreamliner into service.) The tanker is built on Boeing’s 767 wide-body plane, which has seen falling orders as customers wait for new 787, and the contract will keep alive the company’s Wichita assembly line that builds the 767.

Boeing’s revenues are currently almost evening split between commercial aircraft ($31.8 billion in 2010) and its defense and space business ($31.9 billion.)

Yesterday Boeing’s stock jumped $3.9% in afterhours trading in New York. It moved into today's close up 2.6%. (For my last alert on Boeing’s shares see my post http://jubakpicks.com/2011/01/26/update-boeing-ba-4/ )

I don’t see any reason to raise my $83 target price on this news. You want to own Boeing here for the 878 Dreamliner story. But it is great to get some good news on this stock in the meantime.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Boeing as of the end of January. For a full list of the stocks in the fund as of the end of January see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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