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Raytheon Wins Deal to Supply APY-10 Radar Kits for P-8A Jets

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Raytheon Company (RTN - Free Report) recently secured a modification contract for providing APY-10 radar system production kits and associated services to support the production of 8th and 9th lots of P-8A Poseidon aircraft. Work is related to the deal is expected to be completed by September 2022.

Valued at $46.1 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. Per the terms of the agreement, the company will supply the radar kits to the U.S. Navy as well as the United Kingdom and Australian government.

Majority of the work will be carried out in McKinney, TX. Raytheon will utilize fiscal 2018 aircraft procurement (Navy) and Foreign Military Sales (FMS) funds to complete the task.

A Brief Note on APY-10 Radar System

Raytheon’s AN/APY-10 is a state-of-the-art maritime, littoral and overland surveillance radar that supports Boeing’s (BA - Free Report) P-8A Poseidon — the U.S. Navy's next-generation multi-mission patrol aircraft.

Notably, this radar is the only system of its type to provide a dedicated short exposure submarine periscope detection mode as well as ultra-high resolution imaging modes for maritime and overland operations, delivering uncompromised performance in every operational environment.

What’s Favoring Raytheon?

With increasing cyber attacks, terror threats and geopolitical instability, there is an immediate need for all countries to elevate their level of security and defense. In this regard, while surveillance plays a vital role in maintaining a nation’s security, upgraded radar systems form an integral part of those surveillance programs.

Raytheon, being a producer of a wide range of next-generation radars, enjoys a pioneering position in the surveillance radar market.

Currently, Boeing’s P-8A— one of the world’s most advanced anti-submarine warfare aircraft— witnesses strong demand in the military aircraft space and is expected to continue to doing so in coming days. The U.S. fiscal 2019 defense budget, which includes an investment plan of $2.2 billion for 10 P-8A Poseidon jets, further supports this testament. Increased adoption of P-8A aircraft indicates more contracts for Raytheon’s APY-10 radar system, which in turn, should boost the company’s top line.

In the second quarter 2018, Raytheon’s Space and Airborne Systems (SAS) business segment’s top line decreasedon a year-over-year basis. However, management expressed its confidence about this unit’s rebound to a positive growth trajectory in the second half of 2018. To this end, we believe the latest contract win will play a vital role and help the company in achieving its expectation of an impressive top-line growth. .

Price Performance

In a year’s time, Raytheon’s stock has returned 10.1% compared with the 18.4% rally of the industry it belongs to. This underperformance might have been caused by stiff competition that the company faces in domestic as well as overseas markets.

Zacks Rank & Key Picks

Raytheon currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are Aerojet Rocketdyne Holdings (AJRD - Free Report) and Engility Holdings (EGL - Free Report) . While Aerojet Rocketdyne Holdings sports a Zacks Rank #1 (Strong Buy), Engility Holdings carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne came up with an average positive earnings surprise of 9.27% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings moved north 30.9% to $1.27 over the last 90 days.

Engility Holdings delivered an average positive earnings surprise of 19% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings climbed 16.8% to $2.02 over the last 90 days.

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