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Raytheon Wins $2.3B Deal to Support PATRIOT Missile Systems

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Raytheon Company recently won a hybrid contract for providing engineering services to the Phased Array Tracking Radar Intercept on Target (PATRIOT) weapon systems program.

Details of the Deal

The contract is valued at $2.3 billion and has been awarded by the U.S. Army Contracting Command, New Jersey.

Apart from engineering services, Raytheon will offer services for ongoing support of software and to refresh for obsolescence to include support of systems outside the continental United States and partner country systems.

Work is scheduled to be completed by Jan 31, 2023. Also, per the contract, work locations and funding will be determined with each received order.

A Brief Note on PATRIOT

PATRIOT is a long-range, high-altitude all-weather missile defense system designed to counter threats from tactical ballistic missiles, cruise missiles and advanced fighter aircraft. This missile defense system was successfully used during the 1991 Gulf and Iraq War.

The system consists of radars, command-and-control technology and other multiple interceptors. It is designed and engineered to detect and identify tactical ballistic missiles, cruise missiles, drones, advanced aircraft and other threats.

Raytheon also designs the popular PATRIOT missile defense interceptors and has been consistently focusing on upgrading this missile defense system in order to keep pace with the changing dynamics of modern warfare.

What’s Favoring Raytheon?

Raytheon’s PATRIOT missile defense systems have seen a number of buyers in recent times including international customers like Qatar, Korea, Poland and others. In November 2017, Sweden announced the
selection of Raytheon’s combat proven Patriot Air and missile defense system capability and is expected to sign a Letter of Agreement (LOA) in mid-2018, which is approximately worth $1 billion. During the same
time frame, Romania also signed an LOA with the U.S. government to purchase PATRIOT. Such events have thus led the U.S. government to begin contract negotiations with Raytheon and subsequently help the
latter expand in Europe and strengthen its PATRIOT franchise.

The strong demand for the system from existing customers also favors the company in a massive way. Armed forces of 14 countries already use this missile defense system and it also plans on expanding its market base in Japan and the Middle-East region. In early January, Raytheon clinched a new direct commercial contract for PATRIOT capabilities worth more than $1.5 billion.

No doubt such a solid order flow for the system is capable of substantially stoking Raytheon’s top line. The company’s Integrated Defense Systems (“IDS”) division, which includes the PATRIOT program, recorded fourth-quarter 2017 net sales of $1,553 million, reflecting a 6% improvement from the year-ago quarter. We expect the latest contract to boost growth at this segment in the days ahead.

Moreover, the rocket and missile market is projected to grow from $55.53 billion in 2017 to $70 billion by 2022, at a CAGR of 4.74% (per Markets and Markets research firm). Given the solid prospects, frequent contract wins from the Pentagon for high-end missile systems like the PATRIOT will help Raytheon gain traction in the aerospace and defense industry.

Price Performance

Shares of Raytheon have rallied about 44.3% in a year, compared with the broader industry’s 42.5%. The company’s growing demand for missile defense systems and expanding overseas business boosted the performance.



 

Zacks Rank & Other Key Picks    

Raytheon carries a Zacks Rank #2 (Buy). A few other top-ranked stocks in the same sector are Lockheed Martin (LMT - Free Report) , Huntington Ingalls Industries (HII - Free Report) and Spirit Aerosystems (SPR - Free Report) , each of them sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lockheed Martin posted an average positive earnings surprise of 4.62% for the past four quarters. The Zacks Consensus Estimate for first-quarter 2018 earnings rose by 19 cents over the last 60 days.

Spirit Aerosystems has an average positive earnings surprise of 4.52% for the last four quarters. The Zacks Consensus Estimate for first-quarter 2018 earnings rose by 10 cents in the past 60 days.

Huntington Ingalls posted an average positive earnings surprise of 14.22% for the last four quarters. The Zacks Consensus Estimate for first-quarter 2018 earnings has risen by 22 cents in the past 60 days.

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