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Raytheon Wins $355M FMS Deal for AGM-88 HARM Refurbishment

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Raytheon Company (RTN - Free Report) recently secured a $355.4-million contract for reconditioning AGM-88B High Speed Anti-Radiation Missiles (HARM). The contract was awarded by the Air Force Life Cycle Management Center, Warner Robins, GA.

Per the agreement, the company will refurbish and convert AGM-88B into Captive Air Training Missiles (CATM-88B) for approved Foreign Military Sales nations of Qatar, Taiwan and Bahrain. Work related to the deal will be executed in Tucson, AZ, which is scheduled to get completed by 2027.

A Brief Note on the AGM-88 HARM Weapon System

AGM-88 HARM is a joint U.S. Navy and Air Force program developed by the Navy and Raytheon. The upgraded missile is the HARM Control Section Modification (HCSM), which includes a GPS receiver and an improved inertial measurement unit for precision navigation.

The missile is used to destroy surface-to-air missile radar and radar-directed air defense artillery systems. In recent times, continued hardware and software upgrades have allowed HARM to counter advanced radar threats. Currently, the missile is employed on a variety of Navy, Air Force and Marine Corps aircraft, including the EA-6B, F-16 and F/A-18.

What’s Favoring Raytheon?

Increasing geo-political tensions across the globe have prompted nations to strengthen their defense systems manifold. With rapid technological upgrades, missile defense has steadily emerged to play a pivotal role in a nation’s defense strategy. With the United States being the world’s largest weapons supplier, it is a golden era for the nation’s premier defense contractors like Raytheon.

Interestingly, the U.S. government proposed the fiscal 2020 defense budget in March 2019, under which the Department of Defense would receive $718 billion, reflecting a 4.9% increase from the prior-year budget. Furthermore, the proposed budget includes a spending plan of $13.6 billion on missile defense. Once approved, the increased spending provision should usher in more contracts for Raytheon’s AGM-88 Anti-Radiation Missiles along with other major missile programs.

Looking Ahead

Per Markets and Markets, the rocket and missile market is projected to increase from $55.5 billion in 2017 to $70 billion by 2022, at a CAGR of 4.74%. Such massive growth projections, thereby, offer Raytheon ample opportunities to enhance its share in the global missile market.

Price Performance

Shares of the company have lost about 14.3% in a year against the industry’s growth of 5.3%.

Zacks Rank & Key Picks    

Raytheon currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Lockheed Martin Corporation (LMT - Free Report) , Northrop Grumman Corporation (NOC - Free Report) and Heico Corporation (HEI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lockheed Martin came up with average positive earnings surprise of 17.35% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has increased 4.21% to $20.28 in the past 60 days.

Northrop Grumman Corporation delivered average positive earnings surprise of 18.50% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 1.85% to $19.29 in the past 60 days.

Heico Corporation came up with average positive earnings surprise of 4.8% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has risen 2.9% to $2.14 in the past 60 days.

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