Raytheon Company RTN has won a fixed-price incentive firm modification contract worth $528.8 million. Per the contract, Raytheon can exercise an option to supply Advanced Medium Range Air to Air Missile (“AMRAAM”) to the Air Force.
The original contract, on which the company is entitled to exercise an option, was for Lot 28 production. The modified contract entails Raytheon to supply AMRAAM Lot 29 production along with other system equipment. The contract also includes foreign military sales (“FMS”) to Korea, Oman, Singapore and Thailand.
Contract work will be done at Tucson, AZ and is expected to be over by Jan 31, 2018. Contracting activity is the Air Force Life Cycle Management Center, Elgin Air Force Base, FL.
AMRAAM is an all-weather, lightweight and cost effective missile. Incorporated with the newest digital technology, it also provides active radar guidance. The missile is capable of attacking low-altitude targets and features autonomous guidance. It is thus highly efficient and reliable. To date, 36 countries have purchased AMRAAM, which itself is a testament to its efficiency and operational flexibility.
In order to battle sequestration woes, defense companies are now depending heavily on FMS deals to boost their respective top lines.
FMS contracts continue to be the vital growth driver for Raytheon. International bookings comprised 35% of total bookings in 2014, up from 30% in 2013. International backlog increased to 40% in 2014 from 37% in 2013. In 2014, international sales accounted for 29% of the total net sales. In the fourth quarter, international orders represented 50% of its total bookings.
However, it must also be noted that a large portion of Raytheon’s revenues are still generated from the U.S. government sales (about 70% excluding FMS). Thus, Raytheon remains vulnerable to sequestration. The company issued a weak guidance for 2015 and expects to return to low-single digit revenue growth in 2016. Raytheon expects 2015 revenues in the range of $22.3 to $22.8 billion.
Raytheon currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the same sector are Rockwell Collins Inc. COL, Spirit AeroSystems Holdings, Inc. SPR and TransDigm Group Incorporated TDG, each having a Zacks Rank #2 (Buy).
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