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Raytheon Wins $534M Second Generation Infrared CITV Deal

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Raytheon Company (RTN - Free Report) recently secured a hybrid contract to provide the Horizontal Technology Integration Second Generation Forward Looking Infrared (2GF) Commander’s Independent Thermal Viewer (CITV) to the U.S. Army. Valued at $534 million, the deal was awarded by the U.S. Army Contracting Command, Aberdeen Proving Ground, MD.

Per the agreement, Raytheon will also provide azimuth drive assemblies, azimuth drive armor caps and rings, spares and engineering services. The work is expected to get completed by Aug 23, 2026.

A Brief Note on CITV

The CITV serves as a key element in the U.S. Army’s Abrams battle tank. The CITV, which is installed in General Dynamics’ (GD - Free Report) M1A2 Abrams SEP main battle tanks, provides tank commanders with high-quality viewing capabilities to search for additional targets while the tank's gunner engages previously-identified targets. It also functions as a backup gun sight.

With the CITV, the vehicle commander acquires the targets, rapidly relays them to the gunner, and then continues battlefield surveillance for new targets. Moreover, its 360-degree independent rotation allows tank commanders to search for targets without turret movement, enhancing the tank’s survivability and providing it with longer silent watch operations.

What Favors Raytheon?

In the last couple of years, heavy investments have been made for the modernization of Abrams battle tanks, due to increasing geopolitical tensions across the globe. We believe such investments to have also spurred the demand for Raytheon’s Infrared CITVs, which are a key component in the Abrams battle tank. The latest contract win is an example of that.

Moreover, the fiscal 2020 U.S. defense budget included an allotment of $2.2 billion for Abrams battle tank modifications. Such budgetary provisions will ensure more contract wins for the Abrams system and its associated technical upgrades from Pentagon.

Looking ahead, the main battle tank market is expected to see a CAGR of more than 3% during 2019-2024. The growth could be attributed to the increasing investments in the procurement of newer generation battle tanks to replace the older ones. Inevitably, in light of the aforementioned developments and projections, Raytheon would be a significant beneficiary, as demand for CITVs along with other associated products and services would also soar.

Price Performance

Shares of Raytheon have gained 2.3% in the past three months compared with the industry’s growth of 11.1%.

Zacks Rank & Key Picks    

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

A few better-ranked stocks in the same space are Aerojet Rocketdyne Holdings (AJRD - Free Report) and Teledyne Technologies Incorporated (TDY - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne came up with average positive earnings surprise of 25.46% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has risen 13.8% to $1.90 over the past 90 days.

Teledyne Technologies pulled off average positive earnings surprise of 9.26% in the trailing four quarters. The Zacks Consensus Estimate for 2019 earnings has moved 6.42% north to $9.95 over the past 90 days.

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