Raytheon Gets Navy Contract - Analyst Blog

By Zacks | July 13, 2012 AAA

Raytheon Company (RTN) announced that it has received a $45.9 million contract modification to a previously awarded firm-fixed-price contract for the procurement of 123 Tomahawk Block IV Composite Capsule Launching Systems ("CCLS") for the U. S. Navy. The Naval Air Systems Command, Patuxent River, Maryland, is the contracting activity.

The CCLS is a water tight encapsulating system in which the Tomahawk missile is loaded, shipped and launched from Navy submarines.  Work will be performed in Tucson, Arizona; Lincoln, Nebraska; Camden, Arkansas; Rocket Center, West Virginia; Carpentersville, Illinois; Joplin, Missouri; Hopkinton, Massachusetts; Huntsville, Arkansas; and Alamitos & Torrance, California. Raytheon expects to finish work on the contract by July 2014.  

Raytheon is one of the best-positioned companies among the large-cap defense players due to its non-platform-centric focus, as well as its strong order bookings and order backlog of more than $34 billion at the end of the first quarter of 2012.

Revenue and earnings growth continue to be driven by a strong presence in the areas of Intelligence, Surveillance and Reconnaissance ("ISR"); air & missile defense systems; border security; air traffic management; training and homeland security; and cyber security. Also, its non-platform centric focus insulates it from cancellation or deferral of any specific platform programs.

Looking forward, the company enjoys strong order bookings and order backlog, an improving balance sheet, and growing cash flow, besides operational improvements. Future growth will be driven by its focus on ISR unmanned systems, training, cyber security, Standard Missile-6, Patriot, Zumwalt and THAAD. The company presently retains a short-term Zacks #1 Rank (Strong Buy).

The positives are, however, offset by apprehensions over future growth of the U.S. defense budget, the fate of high-cost programs, risks related to key project executions and order cancellations. Thus, over the longer run, we maintain our long-term Neutral recommendation on the stock.

Based in Massachusetts, Raytheon Company 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. Some of its main competitors include The Boeing Company (BA) and Lockheed Martin Corporation (LMT).

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