Back to top

Analyst Blog

Defense contractor Raytheon Co. (RTN - Analyst Report) won a contract to supply radar systems to the U.S. Navy for the Aegis program. Raytheon, which is producing these systems for decades, said the multi-year order from the Navy is worth $406 million.

The contract calls for Raytheon to supply AN/SPY-1 radar transmitters and MK99 Fire Control Systems for the aforementioned program. Aegis is an improved weapons system installed on U.S., Japanese, Korean and Norwegian ships in order to protect against airborne threats, including ballistic missiles.

Both these systems are an essential part of the Navy's Aegis missile defense system. Over the past 32 years, these systems are in continuous production and are in use aboard 109 warships worldwide, comprising 17 ships sailed by foreign nations.

Raytheon is one of the best-positioned companies among the large-cap defense players due to its non-platform-centric focus, as well as its strong order bookings and order backlog of more than $32.2 billion at the end of the third quarter 2013. New bookings in the quarter were $5.7 billion. Raytheon has been known for introducing high-tech engineering and systems support capabilities to the U.S. defense.

In addition, Raytheon is progressing well on its numerous programs, namely, the Standard Missile-3 (SM-3) missile interceptor, the Advanced Medium-Range Air to Air Missile, the SM-2 and SM-6 ship defense missiles, Javelin anti-tank missile, Rolling Airframe Missile, Small Diameter Bomb II and Tactical Tomahawk. Successful completion of these programs will enable it to get more orders in the future.

Recently, the defense player’s third quarter earnings came up above our expectation driven by strong program execution. It also boosted its 2013 sales guidance to the range of $23.6–$23.8 billion from its prior expectation of $23.5–$23.7 billion. Importantly, the company raised its adjusted earnings per share guidance to a range of $6.10 to $6.20 from $6.00 to $6.10 earlier. The defense major also hiked its operating cash flow from continuing operations forecast to the range of $2.2 billion to $2.4 billion for full-year 2013 from its earlier forecast of $2.1–$2.3 billion.

Hence sequestration or budget cut notwithstanding, this defense contractor seems to be performing well, currently pursuing cost-containment measures and is consolidating its business to ward off the U.S. defense budget pressure. These initiatives will enable the company to improve its margins, going forward.

Raytheon currently holds a Zacks Rank #1 (Strong Buy). One can also consider Lockheed Martin Corp. (LMT - Analyst Report), Huntington Ingalls Industries, Inc. (HII - Snapshot Report) and General Dynamics Corp. (GD - Analyst Report) as good buying opportunities. These defense operators hold a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
TRIQUINT SE… TQNT 20.67 +6.52%
RF MICRO DE… RFMD 12.47 +6.04%
VASCO DATA… VDSI 14.77 +4.68%
BANCO DO BR… BDORY 15.53 +3.95%
STRATTEC SE… STRT 80.24 +3.00%