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Raytheon Wins $60M Deal for Torpedo Components Production

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Raytheon Company’s Integrated Defense Systems (IDS) business unit recently won a $60-million modification contract under the Foreign Military Sales (FMS) program for the production of torpedo components. The contract was awarded by the Naval Sea Systems Command, Washington, DC.

Details of the Deal

Per the terms of the deal, Raytheon will also provide spares, production support material, related engineering services and hardware support in the production of torpedo components. Work related to the deal is expected to be completed by July 2021. While majority of the work will be performed in Portsmouth, RI; the remaining will be executed in Keyport, WA.

The modification deal includes 47% of the purchases for the U.S. Navy; 50% for the Taiwan government; and 3% combined for the governments of Canada, Australia and India.

Foreign Military Sales

Raytheon, being one of the top missile makers in the United States, enjoys heavy inflow of international orders for its varied products. Notably, the company had international bookings of $1,821 million in the second quarter of 2018, which reflected 45% of total bookings received by the company.

The company’s Foreign Military Sales through the U.S. government stood at $912 million in second-quarter 2018, higher than $718 million registered at the end of the first quarter. This reflected 13.8% of the total net sales made by the company.

What’s Favoring Raytheon’s IDS Division?

The IDS Segment delivers combat-proven performance against the complete spectrum of airborne and ballistic missile threats, which makes Raytheon a global leader in the technology, development, and production of sensors and mission systems. The IDS segment provides solutions to the U.S. Department of Defense and the U.S. Intelligence Community, and also caters to more than 50 international customers. As a result, this positions the company in procuring major contracts, such as the latest one, which may instill further growth within the segment.

Fiscal 2019 Defense Budget to Assist Raytheon

The fiscal 2019 defense budget was approved by the U.S. Senate toward the end of June, which provisioned for a spending plan of $12.9 billion for missile defense. Raytheon, being one of the top missile makers in the United States, will surely be a significant beneficiary from the budget, which includes an investment plan of $1.1 billion for 240 Patriot Missile Segment Enhancements.

Notably, Raytheon’s Integrated Defense Systems (IDS) unit reported second-quarter 2018 revenues of $1.51 billion, inching up 3.6% year over year, primarily driven by higher net sales from an international Patriot program awarded in the prior quarter.

Price Movement

Raytheon’s stock has gained 11.3% in the last 12 months compared with the industry’s growth of 18.1%. The underperformance may have been caused due to tough competition that the company faces in the defense market.



Zacks Rank & Stocks to Consider

Raytheon currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Aerojet Rocketdyne Holdings , Engility Holdings and Huntington Ingalls Industries (HII - Free Report) .

While Aerojet Rocketdyne Holdings sports a Zacks Rank #1 (Strong Buy), Engility Holdings and Huntington Ingalls carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne came up with an average positive earnings surprise of 9.27% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 30.9% to $1.27 in the last 90 days.

Engility Holdings delivered an average positive earnings surprise of 19% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 18.9% to $2.02 in the last 90 days.

Huntington Ingalls Industries came up with an average positive earnings surprise of 9.48% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 3.8% to $17.25 in the last 90 days.

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