Raytheon Company has won a contract from the U.S. Navy for offering cyberspace science, research, engineering, and technology integration. Valued at $98.1 million, this is a three-year contract that includes one two-year option ordering period which, if exercised, would raise the potential value of this contract to $165.9 million.

Majority of the work will be executed in San Diego and a very minimal percentage at other continental U.S. and outside continental U.S. locations.  Work is expected to be over by Sep 14, 2019.

 This contract was awarded by the Space and Naval Warfare Systems Center Pacific, San Diego, CA, and will utilize research, development test and evaluation, operations and maintenance as well as other procurement funds.

Under the terms of this contract, services to be rendered by Raytheon include technology assessment, development and transition; requirements analysis; systems engineering; operational and technical support; experimentation support; hardware and software development and prototyping; modeling and simulation; training; and security engineering/cybersecurity.

Meanwhile, this defense giant has also grabbed another contract for the manufacture and delivery of 18 AN/APG-79 Active Electronically Scanned Array (AESA) radars for Navy F/A-18E/F and EA-18G aircraft. Valued at $63 million, this contract was awarded by Naval Air Systems Command, Patuxent River, MD.

Majority of the work will be performed in Forest, MS; Dallas, TX; while the rest in El Segundo, CA; and Andover, MA. Work is scheduled to be over in July 2018. 

Under this contract, Raytheon will also offer procurement of two AN/APG-79 AESA radars in support of testing associated with the AESA configuration D upgrade, and one AN/APG-79 radar for the government of Australia. This particular contract will primarily utilize fiscal 2016 aircraft procurement and, to a lesser extent, foreign military sales (FMS) fund.

Notably, Raytheon’s combat-proven AN/ APG-79 AESA radar system represents a significant advance in radar technology, which substantially increases the power of the U.S. Navy's F/A-18E/F Super Hornet aircraft in particular, making it less vulnerable than ever before. Currently this radar system also serves the Royal Australian Air Force.

Our View

With the U.S. fiscal 2016 bill emphasizing cyber programs, cyber-oriented work is expected to yield solid growth in the coming years. In recent years, Raytheon has invested more than $3.5 billion to expand its cybersecurity capabilities, as cybersecurity incidents have escalated an average 66% on a yearly basis between 2009 and 2014 globally.

Being one of the best-positioned large-cap defense players, Raytheon’s next-generation radar systems also offer advance defense solutions that attract potential customers like the U.S. Navy and defense administrators of foreign countries, thereby enhancing demand for Raytheon’s Integrated Defense Systems (IDS) products. Accordingly, we expect the aforementioned contracts to boost up the revenues that the company earns from its IDS business segment.

Strong Buy

Raytheon currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the aerospace and defense sector include Engility Holdings, Inc. , General Dynamics Corp. (GD Quick QuoteGD - Free Report) and Ducommun Inc. (DCO Quick QuoteDCO - Free Report) . While Engility and Ducommun sport a Zacks Rank #1 (Strong Buy), General Dynamics carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

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