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Raytheon (RTX) Clinches $269M Deal to Support ESSM Program

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Raytheon Technologies Corp. RTX recently secured a modification contract to support full-rate production requirements involving the Evolved Seasparrow Missile (ESSM) Block 2. The award has been offered by the Naval Sea Systems Command, Washington, D.C.

Valued at $269 million, this deal is expected to get completed by March 2025. The majority of the work related to this contract will be executed in Tucson, AZ.

What’s Favoring Raytheon?

Increasing geopolitical tensions across the globe have prompted nations, both developed and developing, to strengthen their defense systems manifold. Following the rapid technological advancements, missile defense has steadily emerged as a key catalyst for the nation’s defense strategy.

With the United States being the world’s largest weapons supplier and Raytheon Technologies a prominent U.S. missile maker, the company has been clinching significant awards for the enhancement of its missile defense systems with the latest technologies and providing its end users complex technical services. The latest contract is one such example.

The U.S. fiscal 2022 defense budget proposal provisioned $20.4 billion for investments in missile defense. This should enable Raytheon Technologies to clinch more contracts related to various missile defense systems and associated services.

Thus, it is reasonable to expect Raytheon’s Missiles and Defense segment, which witnessed 5% year-over-year growth in the third quarter of 2021, to put up a similar stellar show in the coming days.

Growth Prospects

Per a report by Mordor Intelligence, the global missiles and missile defense systems market is estimated to register a CAGR of over 10% during the 2020-2025 period. Such massive growth projections indicate solid opportunities for prominent missile manufacturers like Raytheon Technologies along with Northrop Grumman NOC, Lockheed Martin LMT and General Dynamics GD.

Northrop is a prominent developer of missile systems, and counter systems, including strategic deterrents, as well as subsystems and components. In fact, to strengthen its position in the missile market, Northrop acquired Orbital ATK in 2018, which used to be one of the industry leaders in providing missile components across air-, sea- and land-based systems.

Northrop reported third-quarter 2021 earnings of $6.63 per share, which surpassed the Zacks Consensus Estimate by 11.8%. NOC stock has gained 24.6% in the past year.

Lockheed’s Missiles and Fire Control business unit develops, manufactures, and supports advanced combat missiles and rockets for military customers, including the U.S. Army, Navy, Air Force, Marine Corps, NASA and dozens of foreign allies. Some of its prominent products include the PAC-3 missile as well as the Terminal High Altitude Area Defense missile.

Lockheed’s third-quarter 2021 adjusted earnings of $6.66 per share surpassed the Zacks Consensus Estimate by a whopping 239.8%. LMT boasts a long-term earnings growth rate of 3.6%

General Dynamics’ Ordnance and Tactical Systems is the system integrator of the 2.75-inch Hydra-70 family of rockets. It also produces composite rocket motor cases and launch tubes for tactical and strategic missiles.

General Dynamics’ third-quarter 2021 earnings from continuing operations of $3.07 per share surpassed the Zacks Consensus Estimate by 3.4%. GD stock has gained 32.7% in the past year.

Price Movement

In the past year, Raytheon Technologies’ shares have gained 17.6% compared with the industry’s 7% growth.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Zacks Rank

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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