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Raytheon (RTX) Wins Navy Contract to Support ESSM Block 2

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Raytheon Technologies Corp. (RTX - Free Report) recently secured a modification contract involving the Evolved Seasparrow Missile (“ESSM”) Block 2. The award has been provided by the Naval Sea Systems Command, Washington, DC.

Details of the Deal

Valued at $55.1 million, the contract is expected to be completed by March 2027. Per the terms of the deal, Raytheon will offer guided missile assemblies, shipping containers and spare parts to support ESSM Block 2’s full rate production.

A major portion of work related to this deal will be carried out in Tucson, AZ.

What’s Favoring Raytheon?

Nations are strengthening their defense capabilities amid rising geopolitical tensions. The recent tiff between Ukraine and Russia has fueled the demand for military weaponry and arsenals as nations prepare themselves for any sudden assault. In such a scenario, missiles, which play an integral role in any defense structure, may witness a spike in demand.

Per the report from Mordor Intelligence, the missiles and missile defense system market is anticipated to witness a CAGR of 4.8% over the 2023-2028 period. This bodes well for Raytheon as it enjoys an established position in the military missiles market.

Apart from ESSM, Raytheon enjoys strong demand for a variety of combat-proven missile defense systems. These include the Patriot missile, Standard Missile-6, Standard Missile-3, Advanced Medium-Range Air-to-Air Missile, Tomahawk cruise missile and a few more.

Such a solid portfolio of missile systems enables the company to win frequent missile contracts from Pentagon and other U.S. allies, like the latest one. RTX’s backlog for its Missiles & Defense segment was $34 billion as of Dec 31, 2022, up 17.2% from the backlog as of Dec 31, 2021. Such a strong backlog tends to boost the company’s revenue generation prospects from the Missiles and Defense business unit.

Peer Growth Prospects

Some other defense majors who have fortified their position in the military missile market and are poised to enjoy the perks of the expanding market are:

Northrop Grumman (NOC - Free Report) designs and produces missile products, including advanced high-speed propulsion systems, fuses, warheads and controls for air, sea and land-based systems.

The company has a long-term (three to five years) earnings growth rate of 3.5%. The Zacks Consensus Estimate for NOC’s 2023 sales indicates an improvement of 4.6% from the prior-year reported figure.

Lockheed Martin’s (LMT - Free Report) Missiles and Fire Control develops, manufactures and supports advanced combat, missile, rocket, manned and unmanned systems for military customers. These include the U.S. Army, Navy, Air Force, Marine Corps, NASA and dozens of foreign allies.

LMT’s long-term earnings growth rate is pegged at 6.9%. Shares of the company have returned 9.3% value to investors in the past year.

BAE Systems’ (BAESY - Free Report) next-generation missile seeker technology plays a vital role in defense, offering protection from potential threats. It provides high-performance missile seeker technology for ballistic missile defense.

BAESY boasts a long-term earnings growth rate of 13.7%. The Zacks Consensus Estimate for the company’s 2023 sales indicates an improvement of 25.4% from the prior-year reported figure.

Price Movement

In the past six months, shares of Raytheon Technologies have rallied 18.1% compared with the industry’s 14.3% growth.

Zacks Investment Research
Image Source: Zacks Investment Research

Zacks Rank

Raytheon Technologies currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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