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Raytheon Gets Paveway II Int'l Order

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Raytheon Company (RTN - Free Report) has received an international order worth $106 million for its Paveway II smart bombs.  Per this direct commercial sale contract, the company will provide Paveway kits for both GBU-12 (500lb) and GBU-58 (250lb) guided bombs.

Paveway is a kit designed by Raytheon and provides warfighter accuracy and standoff capability that has revolutionized tactical air-to-ground warfare by converting dumb bombs into precision-guided munitions. Bombs equipped with Paveway kits have been tested and proven in every major conflict in which it has been used.

The improved version of Paveway includes Global Positioning System (“GPS”)/Inertial Navigation System guidance capabilities. The new version is a combination of precision and flexibility of traditional laser-guided weapons and all-weather capability of Inertial Navigation System guidance. The old and new versions put together evolves into a weapon that enhances the mission success rate while lowering the requisite sortie count and weapon inventory.

In Nov 2012, the company had received a contract worth $422 million for its combat-proven Paveway II family of precision-guided munitions. The contract was under a direct commercial sale from an international customer.

Raytheon is one of the best-positioned companies among the large-cap defense players. The company competes with Lockheed Martin Corporation (LMT - Free Report) for the supply of laser guided bombs to customers.  Raytheon has been meeting the needs of the U.S. armed forces as well as allied nations with its Paveway line-up of bombs.

Recently, Raytheon received a contract from the U.S. Air Force to provide up to 18 Deployable Radar Approach Control systems. The contract will likely be worth $260 million though Raytheon has been authorized $50.6 million for the early development stage of the D-RAPCON units.

Going forward, revenue and earnings growth would continue to be driven by its 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.

However, we are concerned about the uncertainty stemming from 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 Rank #3 (Hold).

However, stocks worth considering in the defense space are B/E Aerospace Inc. and Alliant Techsystems Inc. , both with a Zacks Rank #2 (Buy).

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