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Raytheon Wins Deal to Offer APY-10 Radar Kits for P-8A Jets

Zacks Equity Research

Raytheon Company RTN recently secured a modification contract for procuring APY-10 Radar System production kits. Work is related to the deal is expected to be complete by September 2022.

Details of the Deal

Valued at $39.7 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, Maryland. Per the terms of the agreement, the company will acquire three APY-10 Radar System production kits for the U.S. Navy, four for the U.K. government and five for the government of Norway. Raytheon will also offer related services in relation to these kits.

The entire task has been awarded to support the production of Boeing’s BA P-8A Poseidon aircraft’s tenth lot. Majority of the work will be carried out in McKinney, TX.

A Brief Note on APY-10 Radar System

Raytheon’s AN/APY-10 is a state-of-the-art maritime, littoral and overland surveillance radar that supports P-8A Poseidon — the U.S. Navy's next-generation multi-mission patrol aircraft.

Notably, this radar is the only system of its type to provide a dedicated short exposure submarine periscope detection mode as well as ultra-high resolution imaging modes for maritime and overland operations, delivering uncompromised performance in every operational environment.

What’s Favoring Raytheon?

With increasing cyber attacks, terror threats and geopolitical instability, there is an immediate need for all countries to elevate their level of security and defense. In this regard, while surveillance plays a vital role in maintaining a nation’s security, upgraded radar systems form an integral part of those surveillance programs.

Raytheon, being a producer of a wide range of next-generation radars, enjoys a pioneering position in the surveillance radar market.

Currently, Boeing’s P-8A— one of the world’s most advanced anti-submarine warfare aircraft— witnesses a solid demand in the military aircraft space and the momentum is expected to continue in the coming days. The U.S. fiscal 2019 defense budget, which includes an investment plan of $2.2 billion for 10 P-8A Poseidon jets, further supports this testament. Increased adoption of P-8A aircraft indicates more contracts for Raytheon’s APY-10 radar system. The latest contract win is a notable instance of that.

In the fourth quarter of 2018, the top line of Raytheon’s Space and Airborne Systems (SAS) business segment increased a solid 13% on a year-over-year basis owing to robust sales of its radar systems.

As demand for radar systems continues to surge manifold these days, we may expect the company to win more contracts like the latest one in the coming days, which in turn might significantly boost its profit margin.

Price Performance

In a year’s time, Raytheon’s stock has lost 15.9% against the 4.9% rise of the industry it belongs to.

Zacks Rank & Key Picks

Raytheon currently carries a Zacks Rank #3 (Hold). Some better-ranked companies in the same sector are AeroVironment, Inc. AVAV and Heico Corp. HEI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AeroVironment delivered average positive earnings surprise of 294.51% in the last four quarters. The Zacks Consensus Estimate for fiscal 2019 earnings has moved 33.3% north to $1.48 over the past 90 days.

Heico’s delivered average positive earnings surprise of 4.80% in the trailing four quarters. The Zacks Consensus Estimate for the company’s earnings in fiscal 2019 has climbed 2.9% to $2.14 over the past 60 days.

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