Shares of Raytheon Company (RTN) reached a 52-week high of $108.00 on Dec 3. In fact, the Massachusetts based aerospace and defense contractor has seen its stock price climb about 18.7% since the beginning of the year, outperforming the S&P 500 peer group average of 12.2% over the time frame.
Why the Bullishness?
The announcement by the Intelligence Advanced Research Projects Activity (:IARPA) on Dec 3 for a multi-year research project to develop a superconducting computer may have stirred optimism among the investors.
The U.S. intelligence community has initiated a multi-year research venture to develop a superconducting computer under the Cryogenic Computer Complexity (C3) program. IARPA has awarded its first contracts to three major technology companies – IBM; Raytheon-BBN Technologies, a wholly owned subsidiary of Raytheon Company; and Northrop Grumman Corporation (NOC). The financial terms were not disclosed.
If successful, this technology will lead to a new generation of superconducting supercomputers that are far more energy efficient. Today’s supercomputers consume high energy that has become a critical challenge for the intelligence community.
Apart from this news, we remain positive on the firm’s near-term prospects as well. Raytheon is one of the best-positioned companies among the large-cap defense players due to its non-platform-centric focus. This insulates the company from program specific risk related to cancellation or deferral of any specific program.
In the third quarter 2014, although the company failed to meet the Street expectations on the top as well as the bottom line, Raytheon saw robust demand for its products, particularly from foreign customers. Rising demand from the Asia-Pacific region as well as from the Gulf countries will continue to drive its international sales. Contributions from foreign defense contracts are expected to touch 30% of total revenues in 2014, exceeding the 2013 level of 27%.
New bookings in the third quarter were $5,878 million compared with $5,685 million in the year-ago period. Book-to-bill was 1.07x in the quarter. Total backlog at the end of the quarter was $33.2 billion (up 3.1% year over year) while funded backlog was $22.9 billion (up about 3.4%).
Raytheon raised its adjusted earnings per share forecast for 2014 to a range of $5.91−$6.01 from its previous forecast of $5.76−$5.91.
Zacks Rank
Raytheon holds a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include The Boeing Co. (BA), General Dynamics Corp. (GD) and Engility Holdings, Inc. (EGL). All these firms hold a Zacks Rank #2 (Buy).
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