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Raytheon Wins $1B Deal to Aid Standard Missile-6 System

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Raytheon Company’s RTN Missile Systems (MS) business division recently secured a $1 billion contract to meet full rate production requirements, spares and round design agent for Standard missile SM-6. The deal was awarded by the Naval Sea Systems Command, Washington, DC.

The majority of work related to the deal will be executed in East Camden, AR, Huntsville, AL and Wolverhampton, United Kingdom. The project is expected to be completed by October 2026.

SM-6 Specifications

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.

First deployed in 2013, Raytheon has delivered over 500 such missiles to date, with many years of production on the horizon as the SM-6 missile continues to evolve to meet warfighter needs.

What’s Favoring Raytheon?

In recent times, missile defense has steadily emerged as a key aspect of 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 2019 net sales of $2,082 million, reflecting a 4% improvement from the year-ago quarter. Considering this, we expect contracts like the latest one to lead to further growth in this segment.

Per Markets and Markets research firm, the rocket and missile market is projected to witness CAGR of 4.7% from $55.5 billion in 2017 to $70 billion by 2022. This, in turn, should boost Raytheon’s growth prospects.

Price Movement

In a year’s time, shares of Raytheon have gained 53.1% compared with the industry’s 54% growth.

Zacks Rank & Key Picks

Raytheon currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are Ducommun Incorporated DCO, HEICO Corp. (HEI - Free Report) and Curtiss-Wright Corporation CW. While Ducommun and HEICO sport a Zacks Rank #1 (Strong Buy), Curtiss-Wright carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ducommun delivered a positive earnings surprise of 14.75% in the last reported quarter. Its Zacks Consensus Estimate for 2020 earnings, pegged at $2.95, reflects 12.6% improvement  over the last 60 days.

HEICO has recorded an average positive earnings surprise of 12.27% in the last four quarters. It currently boasts a solid long-term earnings growth rate of 11.3%.

Curtiss-Wright delivered an average positive earnings surprise of 8.40% in the last four quarters. It currently boasts a solid long-term earnings growth rate of 8.3%.

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