Penn Wealth Publishing

2018.11.04 Penn Wealth Report Vol 6 Issue 04

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18 PeNN Wealth RepoRt volume 6 issue 04 04 Nov 2018 Penn Wealth RePoRt Copyright 2018. All Rights Reserved. Weekly BusiNess RepoRt BoeiNg Beats out sierra Nevada, sikorsky, to WiN huey rePlaCemeNt deal The Pentagon has awarded a $2.4 billion con- tract to Penn Global Leaders Club member Boeing (BA $251-$368-$374) to build a replacement for the aging UH-1N Iroquois choppers, affectionately known as "Hueys." Boeing, which teamed up with Italy's Leonardo SpA for the bid, will build the 84 military choppers at its facilities near Philadelphia, PA. The "MH-139" aircraft will be used to help protect America's ICBM sites around the country, as well as other critical tasks around the world. Boeing beat out privately-held Sierra Nevada and the famed Sikorsky unit of Lockheed Martin to win the Air Force deal. BoeiNg NotChes aNother huge WiN, Will Build Next-geNeratioN air forCe traiNer As if the huey replacement contract wasn't enough, Boeing can now boast a much big- ger prize: it beat out Lockheed Martin (LMT) in a bid to build a new trainer for the United States Air Force. The contract, worth up to $9.2 billion, will allow Boeing's T-X program to move forward, building at least 351 jets, 46 simulators, and associated ground equipment. The T-X (yet to be numbered and named) will replace the venerable T-38 Talon fleet which has been used to train military pilots for two gen- erations. Boeing, which is risk-sharing this project with Sweden's Saab Group (SAABF), will build the aircraft at their St. Louis, MO facilities. BA has a market cap of $211 billion and annual revenues nearing $100 billion. harris, l3 to have "merger of equals," CreatiNg sixth-largest defeNse firm While we haven't traded L3 Technologies (LLL $180-$219-$219) much in the past, Harris Corp (HRS $134-$172-$171) has been one of our favorite "under-the-radar" (no pun intended) defense contractors for decades. It took us by surprise when we heard the two companies had agreed to a "merger of equals," but the potential synergies created by a combination are palpable. Harris is a $20 billion communications equipment company which makes products for space and intelligence systems, air traffic management, energy and maritime compa- nies, and ground network operations. LLL is a $17 billion industrials company that makes high-tech products, systems, and subsystems for the defense electronics business. The two companies would fit together like two adja- cent pieces on a puzzle, with very few little overlap. While shareholders at both firms need to approve the all-stock deal, it is as good as done. Once the merger is completed, the new firm will be called L3 Harris Technologies, and it will instantly become the sixth major aero- space powerhouse, behind Boeing, Raytheon, Lockheed Martin, Northrop Grumman, and General Dynamics. Harris CEO Bill Brown will keep that role for two years at the new com- pany, then hand the baton off to L3 CEO Chris Kubasik. An unusual arrangement, to be sure, but the two have been friends for years. We remain bullish on the industrials sec- tor, and have it on our "overweight" list. Within that sector, our favorite industry remains Aerospace & Defense, with four industry leaders in the Penn Global Leaders Club. L3 Harris might join that group soon. CaN aN aPPle tv suBsCriPtioN serviCe really ComPete With Netflix? Yes, Apple (AAPL $150-$223-$233) has a piece of hardware called Apple TV. But don't confuse that with the new Apple TV subscrip- tion service the company is getting ready to launch. Let there be no doubt: the incredible success that Netflix (NFLX) has had in find- ing people willing to shell out $10.99 per month (there are currently 120 million of us) is the catalyst for this move. But can Apple really deliver? First, let's consider what Apple TV will look like. Although it will use a subscription model, it will differ from Netflix in that it will give away (yes, for free!) its original-con- tent shows to anyone owning the Apple TV device. That is a smart tactic, as the company will have a captive audience to pitch their monthly pay plan to on a regular basis. As for the proprietary Apple shows, last year we reported that the company had com- mitted $1 billion to develop original-content programming (think Game of Thrones or Mad Men for comparison). That is an enormous amount, even by Netflix standards, and should help them launch with a dozen or so shows. When will the service come online? Look for it to manifest in the first half of 2019. According to tech news site The Information, Apple may be planning a high-profile launch in more than 100 countries at once. To be sure, the company has a long way to go before it begins eating into Netflix's customer base, but it has an ace to play: there are cur- rently over 1.3 billion active Apple devices worldwide. That is one impressive launchpad. aerosPaCe & defeNse media & eNtertaiNmeNt Boeing's contract-winning T-X trainer. Photo courtesy: Boeing.

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