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Raytheon Gets $80.5M JSOW Contract

Zacks Equity Research

Raytheon Company (RTN) has received a contract worth $80.5 million for the supply of Joint Standoff Weapon (:JSOW) C-1's to the U.S. Navy.

The supply of JSOW missiles is expected to begin in the second quarter of 2014. The JSOW C-1 will add a weapon datalink radio and modified seeker software to the existing JSOW C, thereby increasing the anti-surface warfare mission capability of JSOW C.

While maintaining their potential against stationary land targets, these weapons are designed to provide fleet forces with flexibility to engage moving maritime targets.

The JSOW family of precision strike weapons is a joint US Navy and US Air Force program based on a modular design that uses a common airframe, guidance systems and flight control. JSOW uses an autonomous, integrated Global Positioning System and Inertial Measurement System navigation system. JSOW is designed to destroy soft and hardened targets, including armored vehicles and fixed structures. The missile has a maximum range of 70 km that ensures delivery outside the lethal range of most enemy air defenses.

In June this year, Raytheon won a U.S. Navy contract for AGM-154C-1 Joint Standoff Weapons (“JSOW”). The contract was for 200 units of Full Rate Production Lot 9 of JSOW.

Despite the adverse effects of sequestration on the defense budget, Raytheon along with other defense primes like Lockheed Martin Corp. (LMT) and Northrop Grumman Corp. (NOC) has received a steady flow of contracts. Recently, Raytheon won a delivery contract, worth $9.6 million, from the U.S. Department of Defense (DoD). The contract, a part of the earlier issued Basic Ordering Agreement, deals with restoration of the H-60 Multi-Spectral Targeting System forward looking infrared turrets.

Earlier, the company won a major part of the $375 million DoD contracts issued on Jul 8, 2013. The company has been awarded a cost-plus-incentive-fee contract with a value of $279.4 million for the development of a new electronic jammer for the U.S. Navy. This contract for the technology development phase of the Next Generation Jammer will replace the ALQ-99 tactical jamming system used on the U.S. Navy EA-18G Growler electronic-attack aircraft manufactured by The Boeing Company (BA).

Despite the declining trend in U.S. defense spending, Raytheon is one of the best-positioned companies among the large-cap defense players due to its non-platform-centric focus. Going forward, we expect the company to continue to remain well positioned based on its realigned segments, international exposure, strong order bookings and order backlog, cash deployment strategy, improving balance sheet, growing cash flow and cost reduction initiatives.

Despite these positives, we remain concerned about 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 Zacks Rank #3 (Hold).


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