Raytheon Gets Missile Contract

Raytheon Company (RTN - Analyst Report) was awarded a $241 million contract modification by the Missile Defense Agency (“MDA‘) for engineering design and development work on the Standard Missile-3 (“SM-3”) Block IIA.

This missile system is being developed as part of the MDA's sea-based Aegis Ballistic Missile Defense system. The missiles are deployed on U.S. Navy cruisers and destroyers and Japanese destroyers to defend against short- to intermediate-range ballistic missile threats in the ascent and midcourse phases of the flight.

Raytheon is one of the best-positioned companies among the large-cap defense players because of its non-platform-centric focus. Looking forward, the company enjoys strong order bookings and order backlog, an improving balance sheet, growing cash flow, and operational improvements. Future growth will be driven by its focus on Intelligence Surveillance Reconnaissance unmanned systems, training, cyber security, Standard Missile, Patriot, and Zumwalt.

The positives are, however, offset by apprehensions over future growth of the U.S. defense budget, the fate of high-cost programs, risks related to key project executions and order cancellations. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock. The company competes with FLIR Systems Inc. (FLIR - Analyst Report) and API Technologies Corp. (ATNY), both of which presently retain Zacks # 3 Ranks (short-term Hold).

In October this year, Raytheon Company reported third-quarter 2011 adjusted earnings of $1.39 per share, beating the Zacks Consensus Estimate of $1.33. Revenue reported by Raytheon in the quarter under review was $6.13 billion, down 2% from $6.27 billion in the year-ago period and also short of the Zacks Consensus Estimate of $6.39 billion.

Based in Waltham, Massachusetts, Raytheon Company is a technology and innovation leader specializing in defense, homeland security and other government markets throughout the world. The company provides state-of-the-art electronics, mission systems integration and other capabilities in the areas of sensing, effects, and command, control, communications and intelligence systems, as well as a broad range of mission support services.

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