Raytheon Company’s (RTN - Free Report) Missile Systems (MS) business division recently secured a $395.5-million modification contract for providing full rate production requirements and spare parts for Standard Missile-6 (SM-6), also known as the RIM-174 Standard Extended Range Active Missile. The contract was awarded by the Naval Sea Systems Command, Washington, DC.
Details of the Deal
Work related to the deal will be primarily executed in East Camden, AR; Tucson, AZ and Wolverhampton, the United Kingdom. The entire task related to the deal is expected to get completed by September 2022.
The cumulative value of the contract can go up to $579.7 million, if the options included in the contract are exercised. Raytheon will utilize fiscal 2017 and 2018 weapons procurement (Navy) funds for completing the task.
Standard Missile-6 Specifics
The Standard Missile-6 (SM-6) system is an endo-atmospheric interceptor, which engages cruise missiles, aircraft and ballistic missiles in the terminal phase. Deployed on cruisers and destroyers in the U.S. Navy, it is the only missile that supports anti-air warfare, anti-surface warfare and sea-based terminal ballistic missile defense in one solution.
What’s Favoring Raytheon?
Increasing geo-political tensions across the globe have prompted nations to strengthen their defense arsenal with technologically advanced missile systems. With these significant advancements, missile defense has steadily emerged to play a pivotal role in a nation’s defense strategy. To this end, Raytheon’s advanced MS segment has been clinching frequent awards from the United States as well as international customers, courtesy of its high- end, combat-proven missiles.
Notably, the MS division recorded second-quarter 2018 net sales of $2,051 million, reflecting a 7.9% improvement from the year-ago quarter. Furthermore, this segment has recently acquired a deal worth $1.5 billion for its Patriot Missile System. We may expect such notable contracts to instill further growth in this segment, going ahead.
Meanwhile, toward the end of June 2018, the U.S. Senate approved the fiscal 2019 defense budget that provisions for major war fighting investments worth $6 billion for Missile Defense Programs. Raytheon, being the largest missile maker in the United States, will surely be a significant beneficiary from this budget. This, in turn, reflects solid growth prospects for its MS segment, which, going ahead, will most likely boost the company’s profit margin.
Per the Markets and Markets research firm, the rocket and missile market is projected to to see a CAGR of 4.74% rising from $55.5 billion in 2017 to $70 billion in 2022. Such growth can be attributed to the increasing geopolitical conflicts, war, and terrorism, significantly driving the demand for rockets and missiles on a global scale. Given this massive opportunity for expansion, frequent contract wins from Pentagon for its missile systems, including the latest one, will allow Raytheon to enhance its market share in the aerospace and defense industry.
Raytheon’s stock has gained 10.2% in the past 12 months compared with the industry’s growth of 17.5%. The underperformance may have been caused due to tough competition that the company faces in the defense market.
Zacks Rank & Key Picks
Raytheon currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the same sector are Heico Corporation (HEI - Free Report) , Wesco Aircraft Holdings (WAIR - Free Report) and Huntington Ingalls Industries (HII - Free Report) .
While Huntington Ingalls sports a Zacks Rank #1 (Strong Buy), Heico Corporation and Wesco Aircraft carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Huntington Ingalls pulled off an average positive earnings surprise of 9.48% for the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings has moved 6.4% north to $17.24 in the last 90 days.
Heico Corporation came up with an average positive earnings surprise of 2.15% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen 2.73% to $1.88 in the last 90 days
Wesco Aircraft delivered an average positive earnings surprise of 1.10% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has moved up 2.6% to 79 cents in the last 90 days.
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