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Raytheon Company (RTN - Analyst Report) was awarded a $230.4 million contract modification from the Missile Defense Agency for a sole-source cost-plus-incentive-fee contract action. The addition to the contract consists of 14 Standard Missile-3 Block IA Missiles and 5 Standard Missile-3 Block IB Missiles. The total value of this contract modification is $230.4 million increasing the total contract value from $1.7 billion to $1.9 billion.

Work on the contract will be done in Tucson, Arizona. Raytheon expects to finish work on the contract by September 30, 2014.

The Standard Missile-3 is a missile system used 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. 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.

Raytheon is one of the best-positioned companies among the large-cap defense players due to its non-platform-centric focus, as well as its strong order bookings and order backlog of more than $33.9 billion at the end of the first half of 2012.

Earlier, in second quarter 2012, Raytheon’s earnings from continuing operations were $1.41 per share compared with $1.20 per share in the prior-year quarter. This was driven by operational improvements and capital deployment events. Reported earnings surpassed the Zacks Consensus Estimate of $1.21 per share. Revenue was $5.99 billion, down 3.4% year over year from $6.20 billion in the year-ago period. Quarterly revenue missed the Zacks Consensus Estimate by $30 million.

In its earnings press release, Raytheon increased its 2012 earnings guidance to a range of $5.70–$5.85 per share from its previous expectation of $5.55–$5.70 per share. On the other hand, the company maintained its sales guidance in a range of $24.5-$25 billion for 2012.

Revenue and earnings growth continue to be driven by a strong presence in the areas of Intelligence, Surveillance and Reconnaissance; air & missile defense systems; border security; air traffic management; training and homeland security; and cyber security. Also, its non-platform centric focus insulates it from cancellation or deferral of any specific platform programs.

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. The company presently retains a short-term Zacks #3 Rank (Hold).

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. Thus, over the longer run, we maintain 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. The company mainly competes with L-3 Communications Holdings Inc. (LLL - Analyst Report) and FLIR Systems Inc. (FLIR - Analyst Report).

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