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Raytheon Wins DoD Contract

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Defense contractor Raytheon Co. (RTN) won a contract modification from the U.S. Department of Defense (DoD) for engineering and technical support work on the Navy's Phalanx, SeaRAM, and Land-based Phalanx Weapon Systems.

The contract, worth $52.1 million, is essentially for maintenance, reliability, and improvements and will run through Jan 2015. Though the latest contract is not much to speak of, such small-ticket contracts still offer some respite from severe budget austerities.

The Phalanx Close-In Weapon System (:CIWS) – a vital part of the Fleet Defense In-Depth concept and the Ship Self-Defense Program – is an automatic "terminal defense" weapon system to detect, track, engage, and destroy anti-ship missiles that have already infiltrated outer defense envelopes.

Counter Rocket, Artillery, and Mortar, or C-RAM is essentially a Phalanx gun system that works on land. The SeaRAM Anti-Ship Missile Defense System operates beyond the Phalanx CIWS, and engages targets with a battery of 11 missiles rather than Phalanx's familiar 20mm Gatling gun.

Raytheon is one of the largest aerospace and defense companies in the U.S. with a diversified line of military products, including missiles, radars, sensors, surveillance and reconnaissance equipment, communication and information systems, naval systems, air traffic control systems, and technical services.

In addition, its diligent focus on technological advancement, like the GaN systems, will fetch lucrative orders from the military. Its business consolidation efforts will also provide successful cost-saving solutions, leading to expanding operating margin in the long term. The 2014 fiscal budget puts emphasis on Raytheon’s prominent programs including Missile and Space systems, which will boost the company’s revenue stream.

Although DoD dependency has aided top-line growth in the past, there is no assurance that the company will continue receiving high-value contracts at regular intervals taking into account the current budget uncertainty.

In fact, the Massachusetts-based defense contractor – Raytheon – currently holds a Zacks Rank #4 (Sell). However, stocks worth considering in the defense sector include General Dynamics Corp. (GD), Huntington Ingalls Industries, Inc. (HII) and Lockheed Martin Corp. (LMT). These stocks presently carry a Zacks Rank #2 (Buy).

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