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Boeing Wins $2.1B US Air Force Contract For KC-46 Tankers

Boeing has won a $2.1 billion contract from the US Air Force to build an additional 15 KC-46 refueling tankers.

According to a statement by the US Department of Defence, Boeing (BA) has been awarded a modification to a previous contract for a production lot of KC-46 aircraft, subscriptions and licenses. Work will be performed in Seattle, Washington, and is expected to be completed by May 31, 2024. 

The KC-46 is a multirole tanker designed to refuel allied and coalition military aircraft and is compatible with international aerial refueling procedures. It can also carry passengers, cargo and patients.

Earlier on Jan. 12, the aerospace giant announced that it was awarded a $1.7 billion US Air Force contract for 12 KC-46A tanker aircraft. With this sixth production lot, Boeing is now on contract for 79 of the KC-46A tankers, the company said. 

In January 2019, the planemaker handed over the first KC-46A to the US Air Force. Since then, Boeing has delivered 42 tankers to four different bases.

“The investments Boeing is making in the KC-46 will benefit generations of service members,” said Jamie Burgess, Boeing KC-46 tanker vice president and program manager. “I believe the partnership between Boeing and the Air Force will also produce additional KC-46 innovations that will carry the warfighter well into the future.”

Back in August 2016, Boeing received its first two production lots from the US Air Force, for seven and 12 aircraft. The third lot, for 15 aircraft, was awarded in January 2017 and the fourth lot for 18 aircraft was allocated in September 2018. The fifth lot for 15 aircraft was awarded in September 2019.

Coming now to BA’s performance, shares have seen some recovery. The stock is up 29% over the past three months after shedding 35% over the past year as COVID-19 travel restrictions have resulted in a deep cut in the number of commercial jet orders. (See BA stock analysis on TipRanks)

Meanwhile, Boeing reported earlier this month that fourth-quarter deliveries included 31 of Boeing’s 737 Max aircraft, which had been grounded for a 20-month period, following two fatal crashes.

Berenberg Bank analyst Andrew Gollan this week lifted BA’s rating to Hold from Sell and raised the price target to $215 from $150, as he believes that the uptick in 737 deliveries “marks a turning point” for a potential recovery.

Gollan views the stock as fairly valued, with “sentiment risks balanced between recovery potential and ongoing near-term headwinds and virus uncertainty.”

“Now that Max deliveries are underway, we do not expect significant new charges. We estimate that c$8bn of cash costs remain outstanding, the majority of which will be paid in 2021. The cash burden then recedes and, helped by rising volumes, Boeing’s cash generation should greatly improve from 2022,” the analyst concluded.

The rest of the Street is mostly in line with Gollan’s outlook. The Hold analyst consensus shows 9 Holds, 4 Sells, and 8 Buys. That’s with an average analyst price target of $226, indicating 7% upside potential lies ahead over the coming 12 months.

Meanwhile, TipRanks’ Hedge Fund Trading Activity tool shows that confidence in BA is currently very negative as 12 hedge funds trimmed their cumulative holdings in the stock by 2.7M shares in the last quarter.

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