Boeing Contract Could Boost Canadian Aerospace Firms

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Includes: BA, CAE
by: FP Trading Desk

The Canadian government’s decision to award the Boeing Co. (NYSE:BA) a $1.15-billion contract Monday for 15 new Chinook helicopters could provide a boost for some Canadian aerospace firms as well, analysts say.

Typically under the terms of such contracts, Boeing would match the value of the contract with industrial offsets to Canadian companies, Chris Murray, CIBC World Markets analyst, noted.

This could provide a boost for Quebec parts-maker, Héroux-Devtek Inc., which has a long standing relationship with Boeing in the defense segment as well as in the civil market.

“We continue to believe that Héroux-Devtek is one of the strongest and best managed companies among the Canadian small-cap aerospace group,” Mr. Murray said in a note to clients.

He recently lowered his price target on the stock to C$8 a share, from C$8.50, and maintained his “sector outperformer” rating.

Mr. Murray also said he expects Milton, Ont.-based Northstar Aerospace, which has extensive ties to Boeing, to benefit from the contract. He has a "sector outperformer" on Northstar and raised his price target to C$1.80 a share, from C$1.60.

Benoit Poirier, Desjardins Securities analyst, said he expects that shares in Montreal’s CAE Inc. (NYSE:CAE), the leading manufacturer of full-flight simulators and training services, should also react positively to the news.

He said in a note to clients:

In our view, this announcement is a positive development for CAE as it is widely expected that the company will be in charge of providing the related training equipment and services solution.

Mr. Poirier estimates the new Boeing contract, which is for new CH-47F heavy lift helicopters, could be worth roughly C$300-million to CAE in related work.

He has a “buy” rating on CAE’s stock and a C$11.50 price target on it.