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Raytheon Wins $88M Deal to Support F/A-18 & EA-18G Aircraft

Zacks Equity Research

Raytheon Company RTN recently secured an $88.4-million modification contract to upgrade sensor system software and hardware for the F/A- 18/EA-18G aircraft to incorporate updates, improvements and enhancements of tactical capabilities. The contract was awarded by the Naval Air Warfare Center Weapons Division, China Lake, California.

Details of the Deal

Per the contract terms, Raytheon will provide technical support for hardware and software anomaly investigation, design, integration and evaluation of systems and support equipment.  

Work related to the deal will be performed in El Segundo, CA and is scheduled to get completed by February 2024. Raytheon will utilize fiscal 2019 research, development, test and evaluation (Navy) funds for the task.

What Favors Raytheon?

Increasing geo-political tensions across the globe have prompted nations, both developed and developing, to strengthen their defense systems manifold. With rapid technological upgrade, identifying threats beforehand has become increasingly crucial, and sensors play an essential role in that. To this end, being a prime defense contractor in the United States, Raytheon’s sensor systems hold a significant share of the U.S. sensor systems market. The latest contract win is an example of its growing market share in the country.

Such contract flows also tend to boost the company’s Space and Airborne Systems (SAS) unit, which develops integrated aircraft communication and
sensor systems. Evidently, this segment registered annual sales growth of 13% in the fourth quarter of 2018. Considering the latest contract win, we can expect this unit to deliver similar top-line growth in coming quarters.

Last year, the U.S. fiscal 2019 defense budget provisioned major war fighting investment of $21.7 billion for aircraft. The budget further included an investment plan of $2 billion for 24 of Boeing’s BA F/A-18 jets. Raytheon, being a major supplier of software and hardware components to Boeing’s aircraft, should benefit from this budgetary provision, going ahead.

Price Movement

Raytheon’s stock has lost 14.8% in the past 12 months, wider than the industry’s decline of 6.9%.

Zacks Rank & Stocks to Consider

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

A few better-ranked companies in the same sector are Aerojet Rocketdyne Holdings, Inc. AJRD and Triumph Group, Inc. TGI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Aerojet Rocketdyne’s long-term growth estimates currently stand at 5.50%. The company came up with average positive earnings surprise of 19.27% in the last four quarters.

Triumph Group’s long-term growth estimates currently stand at 4.80%. The Zacks Consensus Estimate for 2019 earnings has increased 1.23% to $1.64 in the past 30 days.

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