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Raytheon Flooded with DoD Contracts

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Raytheon Company (RTN - Free Report) has received a sizeable $534.8 million firm-fixed-price contract for the production of Advanced Medium-Range Air-to-Air Missiles (AMRAAM) for the U.S. Air Force and the militaries of Oman and Saudi Arabia. With this contract, the company has become one of the 14 lucky awardees who received an award from the Department of Defense (“DoD”).

Specifically, the company will produce approximately 1,800 missiles of AMRAAM Lot 27 with each piece carrying a price tag of $300,000. Out of the total missiles produced approximately 51% of the missiles will be sold to Oman and Saudi Arabia and the balance 49% will go to the U.S. Air Force. The company expects delivery to be completed by Jan 2016.

To date, the company has supplied AMRAAM missiles to 36 different countries throughout the world.

Meanwhile, Raytheon along with iRobot Corp. (IRBT - Free Report) and Oshkosh Corp. (OSK - Free Report) became one of the beneficiaries of 22 separate contract awards given by the DoD. The company received a $22.4 million contract for the supply of 53 ECP-6279 retrofit kits for installation aboard Navy F/A-18 E/F fighter jets and EA-18G electronic warfare aircraft. The company expects delivery to be made by Jul 2015.

A few days back, the company received a follow-on contract from The Boeing Company (BA - Free Report) for the production of APG-63(V)3 active electronically scanned array radars for the United States Air Force and Air National Guard F-15C aircraft.

Also, the company received a subcontract to provide contractor logistics support to the ground station elements for the U.S. Air Force's fleet of RQ-4 Global Hawk unmanned aircraft systems.

This continuous flow of contracts does not prove that the company is immune to the harsh effects of sequestration and declining defense budgets. Per a media report, military personnel cuts would comprise a major part of the $37 billion sequestration made by the DoD. Particularly, military personnel cuts would amount to $20.3 billion, procurement accounts would be reduced by $9.8 billion, and research funding would decline by $6 billion. Construction, housing and management funds would absorb $1.1 billion of the cuts.

We note that Raytheon is one of the largest aerospace and defense companies in the U.S., and provides a wide array of training, space, logistics and engineering solutions for government and civilian customers. The company has 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 sequestration will thus affect the company’s top and bottom line greatly.

That said, Raytheon still enjoys a strong order backlog and increasing bookings. The orders from the DoD have far from dried up. Despite the tough times, as far as federal budgets are concerned, Raytheon will be able to weather the storm on the back of its sheer size and expertise. The company presently retains a short-term Zacks Rank #2 (Buy).

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