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Raytheon Wins $37M Repair Deal for SM-2 and SM-6 Systems

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Raytheon Company’s (RTN - Free Report) Missile Systems (MS) business division recently secured a $37.2-million modification contract to offer intermediate-level repair and maintenance work for the U.S. Navy’s Standard missile SM-2 and Standard missile SM-6. The deal was awarded by the Naval Sea Systems Command, Washington, DC.

Work related to the deal will be executed in Tucson, AZ; Camden, AR; and Huntsville, AL, and is expected to get completed by November 2019. Raytheon will utilize fiscal 2019 operations and maintenance (Navy) funds for the task.

SM-2 and SM-6 Specifics

The Standard Missile-2 (SM-2) system provides superior anti-air warfare and limited anti-surface warfare capability against advanced anti-ship missiles and aircraft. The missile is lethal against subsonic, supersonic, high-maneuvering, anti-ship cruise missile fighters, bombers and helicopters in an advanced electronic countermeasures environment.

The Standard Missile-6 (SM-6) system is an endo-atmospheric interceptor, which engages cruise, aircraft and ballistic missiles in the terminal phase. Deployed on cruisers and destroyers in the U.S. Navy, SM-6 is the only missile that supports anti-air warfare, anti-surface warfare and sea-based terminal ballistic missile defense.

What Favors Raytheon?

In recent times, missile defense has steadily emerged to play a pivotal role in a nation’s defense strategy, due to increasing geo-political tensions across the globe. To this end, Raytheon, a prominent U.S. missile maker, has been clinching frequent awards from the United States as well as international customers, courtesy of its high-end, combat-proven missiles.

Notably, the company’s 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 contracts like the latest one to instill further growth in this segment.

Per the Markets and Markets research firm, the rocket and missile market is projected to see a CAGR of 4.74% from $55.5 billion in 2017 to $70 billion by 2022. This, in turn, should boost Raytheon’s growth prospects.

Price Movement

Raytheon’s stock has declined 8.9% in the past 12 months against the industry’s growth of 5.1%. The underperformance may have been caused by tough competition that 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 companies in the same sector are Aerojet Rocketdyne Holdings (AJRD - Free Report) , The Boeing Company (BA - Free Report) and Lockheed Martin Corporation (LMT - Free Report) .

While Aerojet Rocketdyne sports a Zacks Rank #1 (Strong Buy), Boeing and Lockheed Martin carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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

Boeing delivered average positive earnings surprise of 28.01% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has moved up 3% to $15.05 in the past 90 days.

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

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