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Raytheon to Provide Support Services to ESSM Block 2 Program

Zacks Equity Research

Raytheon Company’s RTN Missiles Systems business unit recently secured a $97.8-million modification contract related to the Evolved Sea Sparrow missiles (ESSM) Block 2. The contract was awarded by the Naval Sea Systems Command, Washington, DC.

Per the deal, Ratheon will provide long lead time materials for fiscal 2019 ESSM Block 2 low-rate initial production. Work related to the deal will be executed in Ontario, Canada; Andover, MA, and several other locations across the world. Tasks are expected to get completed by March 2023.

Raytheon will utilize fiscal 2019 and 2018 weapons procurement (Navy), and fiscal 2018 and 2017 other procurement (Navy) funds for completing the task.

A Brief Note on ESSM Block 2 Program

ESSM is an international cooperative upgrade of the RIM-7 Seasparrow Missile. It provides self-defense battle space and firepower against high speed, highly maneuverable anti-ship missiles in the naval environment, including aircraft, and high and low velocity air threats.

The ESSM program is a global joint initiative undertaken by the United States, the North Atlantic Treaty Organization (“NATO”) and other allied nations to design, develop, examine and procure ESSM missiles. ESSM currently has more than 2,000 proven rounds in service or in production, with another 1,500 rounds anticipated.

What’s Favoring Raytheon?

Increasing geo-political tensions across the globe have prompted nations, both developed and developing, to strengthen their defense systems manifold. With rapid technological upgrades, missile defense has steadily emerged to play a pivotal role in a nation’s defense strategy. With the United States being the world’s largest weapons supplier, it’s a golden era for the nation’s premier defense contractors like Raytheon.

Notably, the fiscal 2019 U.S. defense budget provisioned for a spending plan of $6 billion for varied missile programs. Since then, Raytheon, being a prominent missile maker in America, has successfully secured a number of major contracts related to missile development. Such contract flows have enabled the company’s Missile Systems segment to register a solid sales growth of 6% year over year in the fourth quarter of 2018. Considering the prevailing socio-economic anxiety across all nations, we may expect Raytheon to continue winning such contracts in the days ahead.

Looking Ahead

Currently, the rocket and missile market is projected to increase from $55.5 billion in 2017 to $70 billion by 2022, at a CAGR of 4.74%, per Markets and Markets research firm. Such huge growth opportunities, thereby, offer Raytheon ample chance to enhance its market share in the aerospace and
defense industry.

Price Movement

Raytheon’s stock has improved about 18.9% in the past twelve months compared with the industry’s growth of 23.1%.



Zacks Rank & Key Picks    

Raytheon currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are The Boeing Company BA, Spirit Aerosystems Holdings SPR and Heico Corporation HEI.

While Boeing and Spirit Aerosystems sport a Zacks Rank #1 (Strong Buy), Heico carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boeing came up with average positive earnings surprise of 17.08% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has risen 11.3% to $20.13 in the past 90 days.

Spirit Aerosystems’ long-term growth estimates currently stand at 7.80%. The Zacks Consensus Estimate for 2019 earnings has risen 3% to $7.56 in the past 90 days.

Heico Corporation’s long-term growth estimates currently stand at 12.10%. The Zacks Consensus Estimate for 2019 earnings has increased 5.4% to $2.14 in the past 90 days.

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