Rockwell Collins, Inc. COL secured a contract from the U.S. Navy for procurement of the Tactical Combat Training System Increment II (TCTS Inc II) for environment improvement of the air combat training with rangeless air combat. The TCTS Inc II program will also secure air-to-air and air-to-ground data link.

Details of the Deal

Valued at $142.4 million, the contract was awarded by the Naval Air Warfare Center Training Systems Division, Orlando, FL. Majority of the work related to this deal will be executed in Cedar Rapids, IA; and the rest in Fort Walton Beach, FL; Richardson, TX; and various other locations within the continental U.S.

Per the terms of the agreement, Rockwell Collins will also procure participant subsystems, ground subsystems, remote range units, peculiar support equipment, platform interfaces, an internal rack-mounted subsystem capability for fixed wing and rotary aircraft and an internal subsystem for the Joint Strike Fighter. The company expects to complete work under the deal by Nov 2022.

What’s Driving Rockwell?

Rockwell is the foremost global supplier of communications and avionics equipment for both commercial and military customers.With a diversified portfolio of products, the company’s balanced exposure to both types of customers allows it to use government funding to develop products for the dual-end market. The dual-end market leads to higher volume sales, which create economies of scale in cost-sensitive government contracts. On top of that, government contracts like the one mentioned above will boost growth in the days ahead.

Of late, the company has been pursuing strategic acquisitions to expand its global footprint. Toward this end, Rockwell acquired Pulse.Aero Limited, a U.K.-based company that specializes in self-service bag drop solutions and airline applications. Through this acquisition, Rockwell aims to improve its passenger processing services at airports and airlines.

Earlier, in Oct 2016, the company agreed to acquire B/E Aerospace Inc. The deal is expected to close in 2017, subject to approval and other customary conditions. The acquisition will boost sales of Rockwell Collins’ equipment, which serves the bigger two-aisle planes of The Boeing Co. BA and Airbus Group SE EADSY that dominate international routes. The deal also aims at generating pre-tax cost synergy of roughly $125 million. We expect this transaction to expand Rockwell’s product portfolio, customer mix and geographic presence.

Price Performance

Shares of Rockwell increased 6.8% over the last 12 months, underperforming the Zacks categorized Aerospace-Defense Equipment industry’s gain of 15.8%. This could have been because of intense competition from peers like HEICO Corporation HEI.

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Zacks Rank

Rockwell Collins currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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