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Raytheon Wins $75M Deal to Support Standard Missile-3 Program

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Raytheon Company’s (RTN - Free Report) Missile Systems (MS) business division recently secured a $74.8-million modification contract to execute the Guidance Electronics Unit (GEU) Phase III procurement under the Standard Missile-3 (SM-3) Block IIA contract. The deal was awarded by the Missile Defense Agency, Dahlgren, Virginia.

Details of the Deal

Per the terms of the latest deal, Raytheon will provide qualification, test and integration services for upgrading GEU capability to the SM-3 Block IIA missile. Work related to the deal will be primarily executed in Tucson, AZ, with an expected Phase III completion date of Sep 30, 2020.

The modification brings the total face value of the SM-3 BLK IIA contract to $1.19 billion.

Standard Missile-3 Specifics

The next-generation Standard Missile-3 Block IIA interceptor system is a defensive weapon used by the U.S. Navy to destroy short to intermediate range ballistic missiles. Its new larger rocket motors will allow these interceptors to defend broader areas from ballistic missile threats, whereas its larger kinetic warhead has been enhanced to improve search and track functions, and address advanced and emerging threats. The program has nearly 30 successful space intercepts, and more than 250 interceptors have been delivered to the U.S. and Japanese navies.

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 third-quarter 2018 net sales of $2,082 million, reflecting a 7% improvement from the year-ago quarter. Considering this, 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. The budget also includes Raytheon’s SM-3 weapon system that has been allotted $1.7 billion. The company, being the largest prominent missile maker in the United States, will surely be a significant beneficiary from the budget.

Price Movement

Raytheon’s stock has gained 2% in the past year compared with the industry’s growth of 11.7%. The underperformance may have been caused by the tough competition the company faces in the defense market.

Zacks Rank & Other Key Picks

Raytheon currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the same sector are Aerojet Rocketdyne Holdings (AJRD - Free Report) , Huntington Ingalls Industries (HII - Free Report) and Engility Holdings .

While Aerojet Rocketdyne and Huntington Ingalls sport a Zacks Rank #1 (Strong Buy), Engility Holdings carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne Holdings delivered average positive earnings surprise of 19.27% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has moved up 43.3% to $1.82 cents in the past 90 days.

Huntington Ingalls pulled off average positive earnings surprise of 12.02% for the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings has moved 1% north to $17.43 in the past 90 days.

Engility Holdings came up with average positive earnings surprise of 19.98% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen 4% to $2.10 in the past 90 days

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