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Raytheon Company (RTN - Analyst Report) was awarded a firm-fixed price contract modification of $207.9 million. This increased the total contract value from $364.0 million to $571.9 million. Under this contract modification, the contractor will manufacture and deliver the AN/TPY-2 Radar #11 with associated spares and three forward-based Prime Power Units with associated spares.  The work will be performed in Woburn, Massachusetts.  The performance period is from January 1, 2013 through May 30, 2015.  The contracting activity is Missile Defense Agency, Huntsville, Alabama.

The AN/TPY-2 is the world's most advanced, mobile X-band radar. This multi-functional radar detects, tracks and discriminates ballistic missile threats, effortlessly integrating a variety of ballistic defense systems.

Apart from being used as a part of a Terminal High Altitude Area Defense (THAAD) Battery, AN/TPY-2 radars are deployed around the world to provide continuous forward-based ballistic missile defense, which is a key component of the global Ballistic Missile Defense Architecture.

THAAD is designed, built, and integrated by Lockheed Martin Space Systems, a subsidiary of Lockheed Martin Corporation (LMT - Analyst Report) and is used to shoot down all kinds of ballistic missiles in their terminal phase.

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 high-tech 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.

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 approximately $35 billion at the end of the first nine months of 2012.

Raytheon plays an important role in missile defense and is ideally positioned to help the United States and its allies achieve current and future missile defense goals. Given the declining trend in the U.S. defense spending, the company is one of the best-positioned companies among the large-cap defense players.

Revenue and earnings growth continue to be driven by a strong presence in the areas of Intelligence, Surveillance and Reconnaissance (“ISR”); 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 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.

However, these positives are offset by apprehensions over the 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. The company presently retains a short-term Zacks #3 Rank (Hold). The company mainly competes with L-3 Communications Holdings Inc. (LLL - Analyst Report) and FLIR Systems Inc. (FLIR - Analyst Report).

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