Raytheon Gets $126M DoD Contract

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Raytheon Company (RTN) received a Department of Defense (DoD) contract for the procurement of the material needed to manufacture up to 29 Standard Missile-3 Block IB (“SM-3IB”) missiles. The total value of this sole-source, cost-plus-incentive-fee contract modification is $126 million.

SM-3IB is the newest version of Raytheon’s Standard surface-to-air missile. It seeks to improve upon the efficiency of the original missile with the employment of short bursts of precision propulsion to steer the missile toward incoming targets. The new SM-3IB also has an improved, two-color infrared seeker.

The company expects SM-3IB to be in service in 2015. However, this latest contract modification will enable Raytheon to collect missile parts through at least Sep 30, 2016.

Recently, Raytheon received a sizeable $534.8 million firm-fixed-price contract for the production of Advanced Medium-Range Air-to-Air Missiles (:AMRAAM) for the U.S. Air Force and the militaries of Oman and Saudi Arabia. Specifically, the company will produce approximately 1,800 missiles of AMRAAM Lot 27 with each piece carrying a price tag of $300,000.

Out of the total missiles produced approximately 51% of the missiles will be sold to Oman and Saudi Arabia and the balance 49% will go to the U.S. Air Force. The company expects delivery to be completed by Jan 2016.

Waltham, Mass.-based Raytheon Company is a technology and innovation leader specializing in defense, homeland security and other government markets throughout the world. Its Missile Systems division registered a 7.5% year-over-year increase in revenue in the first quarter of 2013. The upside was mainly attributable to higher sales on the Standard Missile-3 and Rolling Airframe Missile (“RAM”) programs.

Also, Textron Inc. (TXT), Lockheed Martin Corp. (LMT) and Raytheon very recently received DoD contracts worth a cumulative $880 million. Integrated Defense Systems division, a unit of Raytheon, has received a modification contract, worth $10.4 million, to supply radar digital processor upgrade kits for the PATRIOT anti-aircraft missile system.

Despite the continuous flow of contracts, the threat of sequestration, fear from budget uncertainty, the fate of high-cost programs, risks associated with key project executions and order cancellations cannot be denied.

We believe the efforts made by the defense pros to win more international orders will ensure a regular revenue flow. Some companies are also repositioning themselves in order to streamline their operations and reduce operating expenses. These initiatives will help the defense companies to tackle the ongoing headwinds.

Raytheon currently has a Zacks Rank #2 (Buy). Other stocks from the sector that are presently performing well include API Technologies Corp. (ATNY) also with a Zacks Rank #2 (Buy).

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