Raytheon Acquires SafeNet Inc.

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Raytheon Company (RTN) has completed the acquisition of Government Solutions business of SafeNet Inc. for an undisclosed amount. The need for acquiring a privately held data security firm comes in the light of supporting the U.S. government's growing need for protected and encrypted data.

Based in Torrance, California, SafeNet Inc. provides Government Solutions that include encryption products for integration at all levels, and target high-speed, satellite, networking, data link, voice, key management, and wireless communication markets. Therefore, the acquisition would increase the company’s ability to provide the most advanced encryption capabilities required for the safety of classified data by government customers.

SafeNet's Government Solutions business entirely complements Raytheon’s requirements. It brings in broad range of federally-approved encryption solutions that are best suitable for the U.S. military to securely transmit classified voice and data traffic. The transaction would integrate well with Raytheon's existing solutions and hence would provide information assurance to government and industry customers today as well as going forward.

SafeNet Inc. will become a part of Network Centric Systems (“NCS”) segment. The transaction is not accretive to Raytheon’s earnings in the fourth quarter of 2012 or full- year 2013.

Recently, in December 2012, BBN Technologies, a unit of NCS, received a contract to develop new techniques to perform research and develop tools to integrate new and individual facts into existing large information stores. The company would discover the interconnections between disparate data elements and the tactically and strategically significant nuances. We believe that these kinds of acquisitions would help the company in performing task while maintaining its relationship with various customers.

Moreover, the company is moving well with its acquisitions and improving its portfolio. Recently, in October 2012, Raytheon had completed the acquisition of Teligy, Inc. that has improved the company’s cybersecurity offerings in wireless communications, vulnerability analysis, reverse engineering and custom kernel software/device driver development.

In October, Raytheon Company reported third-quarter 2012 adjusted earnings of $1.60 per share, beating the Zacks Consensus Estimate of $1.27 per share. The result was also higher than the year-ago earnings of $1.39 per share.

Among the large-cap defense players, Raytheon is one of the best-positioned companies. Going forward, revenue and earnings growth would continue to be driven by its strong presence in the areas of Intelligence, Surveillance and Reconnaissance (ISR); air & missile defense systems; border security; air traffic management; training and homeland security; and cyber security.

This is, however, offset by apprehensions over the future growth of the U.S. defense budget, the fate of high-cost programs, risks related to key project executions and order cancellations. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Based in Massachusetts, Raytheon Company is one of the largest aerospace and defense companies in the U.S., with a diversified line of military products, including missiles, radars, sensors, surveillance and reconnaissance equipment, communication and information systems, naval systems, air traffic control systems, and technical services. Some of its main competitors are L-3 Communications Holdings Inc. (LLL) and FLIR Systems Inc. (FLIR).

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