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Raytheon Wins $434M Navy Deal for AIM-9X Missile Program

Zacks Equity Research

Raytheon Company’s RTN Missile Systems (MS) business division recently secured a $434.4-million modification contract for the procurement of 766 AIM-9X and 160 AIM-9X Block II+ missiles. The deal will serve the U.S. Navy, U.S. Air Force, and the governments of Israel, Norway, Qatar, South Korea, U.A.E., Australia and Netherlands. The deal was awarded by the Naval Air Systems Command, Patuxent River, MD.

Details of the Deal

The contract also entails Raytheon for the procurement of 170 Block II Captive Air Training Missiles, 12 Special Air Training Missiles, eight Spare Advanced Optical Target Detectors, 35 Spare Captive Air Training Missile Guidance Units, 50 Guidance Unit Containers and one Spare Block II Propulsion Steering Section.

Work related to the deal will be executed in Tucson, AZ; Andover, MA and various other locations across the United States. The entire task is expected to get completed by March 2021.

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 steadily emerged to play a pivotal role for a nation’s defense strategy, due to increasing geo-political tensions across the globe. To this end, Raytheon, a prominent U.S. missile maker, has been clinching frequent awards from the United States as well as international customers, courtesy of its high-end, combat-proven missiles.

In this line, the company’s growth prospects are expected to rise significantly, considering the technological advancements and services it offers in missile defense. This, in turn, boosts revenue growth for the company’s MS business unit. Evidently, the MS division recorded third-quarter 2018 net sales of $2,082 million, reflecting a 7% improvement from the year-ago quarter. To this end, we may expect the latest deal to instill further growth in this segment.

Moreover, the U.S. fiscal 2019 defense budget provisioning for major war fighting investments of $12.9 billion on missile defense should further benefit prominent missile makers like Raytheon.

Price Movement

Raytheon’s stock has lost 18.1% in the past 12 months, wider than the industry’s decline of 4%. The underperformance may have been caused by the tough competition the company faces in the defense market.



Zacks Rank & Stocks to Consider

Raytheon currently carries a Zacks Rank #3 (Hold).

A few better-ranked companies in the same sector are AeroVironment, Inc. AVAV, Teledyne Technologies Incorporated TDY and Lockheed Martin Corporation LMT.

While AeroVironment and Teledyne Technologies sport a Zacks Rank #1 (Strong Buy), Lockheed Martin carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AeroVironment came up with average positive earnings surprise of 257.01% in the last four quarters. The Zacks Consensus Estimate for fiscal 2019 earnings has increased 33.3% to $1.48 in the past 90 days.

Teledyne Technologies came up with average positive earnings surprise of 12.92% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has increased 5.26% to $9.00 in the past 90 days.

Lockheed Martin delivered average positive earnings surprise of 13.92% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has moved up 2.74% to $19.49 in the past 90 days.

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