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Raytheon Wins $77M Low-Rate Production Deal for ESSM Block 2
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Raytheon Company recently secured a contract for commencing low-rate manufacturing, fabricating and production of the Evolved Sea Sparrow missiles (ESSM) Block 2. This reflects a transition from this missile’s engineering, manufacturing and development (EMD) phase. Work related to the deal is scheduled to get over by December 2020.
Valued at $77 million, the contract has been awarded by the Naval Sea Systems Command, Washington, D.C. Per the terms, Raytheon will provide the engineering, test equipment, material and management necessary for the aforementioned transition.
Raytheon will utilize fiscal 2018 research, development, test and evaluation (Navy) funds along with other procurement (Navy) funds to complete the task. Operations under this agreement will be performed in Tucson, USA, Hengelo, Netherlands, Ottobrunn, Germany, Richmond, Australia and various other locations across the world.
A Brief Note on ESSM Block 2 Missiles
ESSM is an international cooperative upgrade of the RIM-7 Sea Sparrow Missile. It provides self-defense battle space and firepower against high-speed, highly maneuverable anti-ship missiles in the naval environment, including aircraft, high and low velocity air threats.
The ESSM program is a global joint initiative undertaken by the U.S., the North Atlantic Treaty Organization (“NATO”) and other allied nations to design, develop, examine and procure ESSM missiles. ESSM currently has more than 2,000 proven rounds in service or in production with another 1,500 rounds anticipated.
What’s Favoring Raytheon?
Increasing geo-political tensions across the globe have prompted nations, both developed as well as developing, to strengthen their defense systems manifold. With rapid technological up gradation, missile defense has steadily emerged to play a pivotal role for a nation’s defense strategy.
Being one of the forerunners in the U.S. missile space, Raytheon has been enjoying a steady stream of missile contracts from the Pentagon. At the end of March 2018, Poland signed a letter of offer and acceptance (LOA) or Phase 1 with the U.S. government to purchase the company’s combat-proven Patriot air and missile defense system. Moreover, in January 2018, the company booked a new direct commercial contract for Patriot capabilities worth more than $1.6 billion. As a result, the company witnessed an 18.5% improvement in first-quarter fiscal 2018 classified bookings.
No doubt, such a solid order flow for the system is capable of substantially boosting Raytheon’s top line. The company’s Missile Systems (MS) division that includes the ESSM program, recorded first-quarter fiscal 2018 net sales of $1,848 million, reflecting a 5% improvement from the year-ago quarter. We expect the latest contract to instill further growth at this segment in the days ahead.
Furthermore, the rocket and missile market is projected to grow from $55.5 billion in 2017 to $70 billion by 2022, at a CAGR of 4.74% during the forecast period (as per Markets and Markets research firm). Given this huge opportunity for expansion, frequent contract wins from Pentagon for its various missiles, including the latest one, will allow Raytheon to further enhance its market share in the aerospace and defense industry.
Price Movement
Raytheon’s stock has improved about 30.9% in the past twelve months, compared with the industry’s gain of 30%. The outperformance was most likely led by the company’s strong international sales and a robust balance sheet.
Zacks Rank & Key Picks
Raytheon currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are AeroVironment (AVAV - Free Report) , Boeing (BA - Free Report) and Heico Corporation (HEI - Free Report) . While AeroVironment sports a Zacks Rank #1 (Strong Buy), Boeing and Heico Corporation carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AeroVironment has an average positive earnings surprise of 147.43% for the past four quarters. Its long-term growth is pegged at 20%.
Boeing recorded an average positive earnings surprise of 29.51% in the past four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 66 cents to $14.61 in the past 90 days.
Heico Corporation recorded an average positive earnings surprise of 0.97% in the past four quarters. The Zacks Consensus Estimate for fiscal 2018 earnings has risen by 21 cents to $2.25 in the past 90 days.
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Raytheon Wins $77M Low-Rate Production Deal for ESSM Block 2
Raytheon Company recently secured a contract for commencing low-rate manufacturing, fabricating and production of the Evolved Sea Sparrow missiles (ESSM) Block 2. This reflects a transition from this missile’s engineering, manufacturing and development (EMD) phase. Work related to the deal is scheduled to get over by December 2020.
Valued at $77 million, the contract has been awarded by the Naval Sea Systems Command, Washington, D.C. Per the terms, Raytheon will provide the engineering, test equipment, material and management necessary for the aforementioned transition.
Raytheon will utilize fiscal 2018 research, development, test and evaluation (Navy) funds along with other procurement (Navy) funds to complete the task. Operations under this agreement will be performed in Tucson, USA, Hengelo, Netherlands, Ottobrunn, Germany, Richmond, Australia and various other locations across the world.
A Brief Note on ESSM Block 2 Missiles
ESSM is an international cooperative upgrade of the RIM-7 Sea Sparrow Missile. It provides self-defense battle space and firepower against high-speed, highly maneuverable anti-ship missiles in the naval environment, including aircraft, high and low velocity air threats.
The ESSM program is a global joint initiative undertaken by the U.S., the North Atlantic Treaty Organization (“NATO”) and other allied nations to design, develop, examine and procure ESSM missiles. ESSM currently has more than 2,000 proven rounds in service or in production with another 1,500 rounds anticipated.
What’s Favoring Raytheon?
Increasing geo-political tensions across the globe have prompted nations, both developed as well as developing, to strengthen their defense systems manifold. With rapid technological up gradation, missile defense has steadily emerged to play a pivotal role for a nation’s defense strategy.
Being one of the forerunners in the U.S. missile space, Raytheon has been enjoying a steady stream of missile contracts from the Pentagon. At the end of March 2018, Poland signed a letter of offer and acceptance (LOA) or Phase 1 with the U.S. government to purchase the company’s combat-proven Patriot air and missile defense system. Moreover, in January 2018, the company booked a new direct commercial contract for Patriot capabilities worth more than $1.6 billion. As a result, the company witnessed an 18.5% improvement in first-quarter fiscal 2018 classified bookings.
No doubt, such a solid order flow for the system is capable of substantially boosting Raytheon’s top line. The company’s Missile Systems (MS) division that includes the ESSM program, recorded first-quarter fiscal 2018 net sales of $1,848 million, reflecting a 5% improvement from the year-ago quarter. We expect the latest contract to instill further growth at this segment in the days ahead.
Furthermore, the rocket and missile market is projected to grow from $55.5 billion in 2017 to $70 billion by 2022, at a CAGR of 4.74% during the forecast period (as per Markets and Markets research firm). Given this huge opportunity for expansion, frequent contract wins from Pentagon for its various missiles, including the latest one, will allow Raytheon to further enhance its market share in the aerospace and
defense industry.
Price Movement
Raytheon’s stock has improved about 30.9% in the past twelve months, compared with the industry’s gain of 30%. The outperformance was most likely led by the company’s strong international sales and a robust balance sheet.
Zacks Rank & Key Picks
Raytheon currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are AeroVironment (AVAV - Free Report) , Boeing (BA - Free Report) and Heico Corporation (HEI - Free Report) . While AeroVironment sports a Zacks Rank #1 (Strong Buy), Boeing and Heico Corporation carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AeroVironment has an average positive earnings surprise of 147.43% for the past four quarters. Its long-term growth is pegged at 20%.
Boeing recorded an average positive earnings surprise of 29.51% in the past four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 66 cents to $14.61 in the past 90 days.
Heico Corporation recorded an average positive earnings surprise of 0.97% in the past four quarters. The Zacks Consensus Estimate for fiscal 2018 earnings has risen by 21 cents to $2.25 in the past 90 days.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>