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Raytheon (RTN) Wins $34M Navy Deal to Support CEC Program

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Raytheon Company’s (RTN - Free Report) Integrated Defense Systems (“IDS”) business segment recently secured a modification contract for offering Common Array Block antenna pre-production unit requirements. These requirements will be supplied to the U.S. Navy to support the Cooperative Engagement Capability (CEC) program.

Valued at $33.8 million, the contract is scheduled to be completed by October 2020. Majority of the work related to the deal will be executed in Largo, FL.

Significance of CEC

The Navy’s CEC program provides a means by which radar measurement data from battle group radars are shared in real time to form a composite air picture and enable cooperative engagements, where different units support one another’s missile operations. Also, the program helps in improving battle force effectiveness by increasing awareness about the overall situation and enabling longer range, cooperative, multiple, or layered engagement strategies.

Raytheon’s Role in CEC

The Common Array Block antenna is an integral component of the CEC system and Raytheon has been playing a leading role in developing array antenna systems for CEC. Working closely with the government-industry team, Raytheon has been continuously adding capability to CEC, extending its functionality besides reducing its size and weight. In fact, the company has been developing the next generation Gallium Nitride (GaN)-based CEC antenna. While this high-power Common Array Block antenna increases the system's reliability and efficiency, it also reduces its size, weight and cost.

Moreover, CEC is a core solution within Raytheon's extensive portfolio of comprehensive, integrated mission capabilities that enables any naval ship to detect, control and engage any threat, whether from the air, surface or undersea. No doubt, Raytheon remains the primary contractor for developing CEC-related radars and equipments, as is evident from the latest contract win. This, in turn, should further boost the company’s revenues, which improved 8.3% year over year in third-quarter 2018.

Looking Ahead

Per Markets and Markets Research firm, the electronically scanned arrays market is expected to witness a CAGR of 6.20% to $8.43 billion by 2021 from the figure registered in 2016. Such growth can be attributed to factors such as replacement of traditional electronically scanned array systems and integration of active electronically scanned arrays with traditional radar system components. This, in turn, might further drive the demand for its spare parts, components and technical services, thereby boosting growth prospects of defense contractors like Raytheon in this market.

Also, in recent times, Raytheon has witnessed significant radar-related success from major investments, including those made in Gallium Nitride (GaN). This helps in amplifying radio energy for radars, jammers and other devices and bolstering the company’s position in the aforementioned market.

Price Movement

In a year’s time, Raytheon has lost 0.9% against the industry’s 8.7% rally. Tough competition in the defense market might have led to this dismal performance.

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) , Lockheed Martin Corp (LMT - Free Report) and Engility Holdings . While Aerojet Rocketdyne and Huntington Ingalls sport a Zacks Rank #1 (Strong Buy), Lockheed Martin and Engility Holdings carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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

Lockheed Martin delivered an average positive earnings surprise of 13.92% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings moved 2.9% north to $17.51 over the past 90 days.

Engility Holdings delivered anaverage positive earnings surprise of 19.98% in the preceding four quarters. The Zacks Consensus Estimate for 2018 earnings moved up 4% to $2.10 over the past 90 days.

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