Raytheon Gets Seasparrow Contract

Raytheon Company (RTN) has been awarded a $226.8 million firm-fixed-price, multi-year support contract for Evolved Seasparrow Missiles production requirements. The Naval Sea Systems Command, Washington, D.C. is the contracting activity.

The contract includes options which, if exercised, would bring the cumulative value of this contract to $259.9 million. This contract combines purchases for the U.S. Navy (83.47%); the Governments of Australia (1.13%); Denmark (1.42%); Canada (2.87%); Germany (2.36%); Norway (0.60%); Greece (1.37%); the Netherlands (2.29%); Spain (0.04%); and Turkey (0.84%) as part of the NATO Seasparrow Consortium; and Japan (0.08%) and Thailand (3.53%) as Foreign Military Sales.

Work on the contract will be performed in Tucson, Arizona (19%); Norway (13%); Germany (11%); Australia (10%); Canada (9%); Andover, Massachusetts (7%); the Netherlands (6%); San Jose, California (4%); Spain (4%); Greece (3%); Camden, Arkansas. (3%); McKinney, Texas (3%); Turkey (2%); Beverly, Massachusetts (1%); Minneapolis, Minnesota (1%); Reston, Virginia (1%); Cincinnati, Ohio (1%); Cheshire, Connecticut (1%); and Denmark (1%). Raytheon expects to complete work on the contract by September 2016.

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 U.S. 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) and FLIR Systems Inc. ( FLIR - Analyst Report ) .