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Raytheon Company (RTN - Analyst Report) has received a contract from the U.S. Navy, worth $108 million, to continue the production of Standard Missile-2 (“SM-2”). These missiles will be sold to the U.S. allies through foreign military sales.

Standard Missile-2 is the world's leading fleet-area air defense weapon. It provides protection against a wide range of advanced threats. It has been integrated with both Aegis and non-Aegis combat weapon systems that provide high- and low-altitude intercept capabilities and performance against advanced anti-ship missile threats. The SM-2 also has a secondary anti-surface ship mission, and uses tail controls and a solid-fuel rocket motor for impulsion and maneuverability.

The missile can be launched from the MK-41, MK-13 and MK-26 launchers. The most advanced variant, the SM-2 Block IV, has successfully intercepted and destroyed short-range ballistic missile targets, demonstrating the weapon's ability to stop ballistic missile threats in their final phases of flight.

Since long, SM-2 has been the primary surface-to-air fleet-air defense weapon of choice for U.S. Navy.  In fact, it has been deployed by the U.S. and eight allied navies. The U.S Navy has committed to continue to consign for SM-2 over the long term. This contract proves that it still continues to keep SM-2s in their stock.

The SM-2 family continues to grow internationally. Countries like Australia, Canada, Germany, Japan, Korea, the Netherlands, Spain and Taiwan have deployed surface combatants. Moreover, several other navies are executing ship configurations to support SM-2 applications.

Apart from Standard Missiles, the Raytheon is also busy with AN/TPY-2 Radars. Recently, it had received a firm-fixed price contract modification worth $207.9 million to manufacture and deliver the AN/TPY-2 Radar #11 with associated spares and three forward-based Prime Power Units with associated spares.

We believe that Raytheon is one of the best-positioned companies among the large-cap defense players, due to its non-platform-centric focus, rising international sales, substantial presence in classified market, and its focus on shareholder value.

However, going forward we remain concerned owing to apprehensions over the future growth in the U.S. defense budget, the fate of high-cost programs, risks related to key project executions and order cancellations.

Like its peers, FLIR Systems, Inc. (FLIR - Analyst Report) and L-3 Communications Holdings Inc. (LLL - Analyst Report), Raytheon presently retains a short-term Zacks #3 Rank (Hold).

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.

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