Raytheon Wins SM-3 Order

Raytheon Company (RTN - Analyst Report) received from the U.S. Navy a $313.8 million contract for low-rate initial production of Standard Missile-6. Delivery is expected to be completed by March 2015.

Work will be performed in Tucson, Arizona; Camden, Arkansas; Andover, Massachusetts; Huntsville, Alabama; Dallas, Texas; Hanahan, South Carolina; Anniston, Alabama; San Jose, California; and Middletown, Ohio.

The Standard Missile-3 is a ship-based missile system used by the US Navy to intercept short- to intermediate-range ballistic missiles as a part of Aegis Ballistic Missile Defense System. SM-3 Block IA, the first variant in the SM-3 family, is used in support of the first phase of the administration's Phased Adaptive Approach (“PAA”) for ballistic missile defense. Standard Missile-6 leverages the legacy Standard Missile airframe and propulsion elements, while incorporating the advanced signal processing and guidance control capabilities of Raytheon's Advanced Medium-Range Air-to-Air Missile.

The SM-3 Block IB, the second variant of the SM-3 family, is an enhanced kinetic warhead seeker with excellent divert and control system and a highly developed signal processing system. It is the keystone of phase two of the administration's PAA. The company targets to employ SM-3 Block IB at sea and ashore by 2015.

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, and growing cash flow, besides operational improvements. Future growth will be driven by its focus on ISR unmanned systems, training, cyber security, Standard Missile-6, Patriot, Zumwalt and THAAD.

This is, 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.

Based in Massachusetts, Raytheon Company is one of the largest aerospace and defense companies in the U.S., with a diversified line of military products, including missiles, radars, sensors, surveillance and reconnaissance equipment, communication and information systems, naval systems, air traffic control systems, and technical services. Some of its main competitors include The Boeing Company (BA - Analyst Report) and Lockheed Martin Corporation (LMT - Analyst Report).