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Raytheon Wins $152M Navy Deal for AIM-9X Missile Program

Zacks Equity Research

Raytheon Company’s RTN Missile Systems (MS) business division recently secured a $151.5-million contract to offer integrated logistics support and repairs for the sustainment of the AIM-9X Block II and Block II+ missiles. The deal has been awarded by the Naval Air Systems Command, Patuxent River, Maryland.

Details of the Deal

Apart from the U.S. Navy and Air Force, the contract will serve the governments of Australia, Belgium, Denmark, Finland, Israel, Japan, Korea, Kuwait, Oman, Malaysia, Morocco, the Netherlands, Norway, Poland, Romania, Saudi Arabia, Singapore, Switzerland, Taiwan, and Turkey, under the Foreign Military Sales (FMS) program.

Majority of the work related to this deal will be executed in Tucson, AZ. The entire task is expected to be completed by May 2020.

A Note on AIM-9X Missile

The AIM-9X Sidewinder missile is the most advanced infrared-tracking, short-range, air-to-air and surface-to-air missile in the world. It is configured for easy installation in a wide range of modern aircraft including the F-15, F-16, F/A-18, E/A-18G, F-22 and F-35 fighters. Its latest variant, the AIM-9X Block II missile, adds a redesigned fuse and a digital ignition safety device that enhances ground handling and in-flight safety.

What Favors Raytheon?

In recent times, missile defense has been steadily playing a pivotal role in a nation’s defense strategy owing to rising geo-political tensions across the globe. With the United States being the largest weapons exporter, Raytheon — a prominent missile maker in the nation — has been clinching frequent awards worldwide as the demand for high-end, combat-proven missiles are increasing significantly.

Backed by such frequent contract inflows, the company’s MS business unit is witnessing solid revenue growth. In first-quarter 2019, this division recorded net sales of $2 billion, reflecting a 9% improvement from the year-ago quarter figure. We may expect the latest deal to instill further growth in this segment.

Looking ahead, the global missile defense systems market is projected to exceed more than $534 billion by 2024 at a CAGR of 40% in the 2018-2024 period (as per the latest data released by MarketWatch). This should bode well for Raytheon in the form of contract wins, which in turn, might bolster its profit margin manifold.

Price Movement

In a year’s time, shares of Raytheon have gained 3.4% compared with the industry’s 13.6% growth.

Zacks Rank & Key Picks

Raytheon currently carries a Zacks Rank #3 (Hold). A few better-ranked companies in the same sector are Leidos Holdings, Inc. LDOS, Northrop Grumman Corp. NOC and Wesco Aircraft Holdings, Inc. WAIR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Leidos Holdings delivered average positive earnings surprise of 6.81% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has moved 1.1% up to $4.58 over the past 60 days.

Northrop delivered average positive earnings surprise of 18.50% in the trailing four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 1.8% to $19.29 over the past 90 days.

Wesco Aircraft’s long-term growth estimate currently stands at 12%. The Zacks Consensus Estimate for 2019 earnings has moved 3.7% north to 84 cents over the past 90 days.

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