Raytheon Company RTN has won a $543.3 million modification contract from the U.S. Missile Defense Agency (“MDA”) to construct, assemble, test and deliver up to 17 Standard Missile-3 (“SM-3”) Block IIA interceptors.
With the latest modification, the contract value comes to a total of $673.4 million from the initial figure of $87.0 million. The contract modification came on the heels of the second flight test by the MDA and the U.S. Navy.
Work is expected to be complete on Mar 2020 and will be performed in Tucson, AZ.
At present, Raytheon's SM-3 is the only ballistic missile that can be operated from both land and sea platforms. The U.S. Navy uses this as a defensive weapon to intercept incoming ballistic missile threats. The company expects the first land-based SM-3 site to be completed in Romania by 2015-end.
The SM-3 Block IIA is being jointly developed by the MDA and the Japanese Ministry of Defense, and is expected to start operations in 2018. The SM-3 variant features larger rocket motors that enable it to protect larger areas from ballistic threats. Its next live-fire test from a naval warship is scheduled for 2016.
The SM-3 Block IIA interceptor will offer higher range and capability compared to the existing version, thereby, adding to its mission flexibility on both Japanese and U.S. Aegis ships. Year to date, Raytheon has delivered over 240 SM-3s to the U.S. and Japanese navies.
We note that Raytheon reported third-quarter 2015 earnings from continuing operations of $1.47 per share, beating the Zacks Consensus Estimate by 5%. The company’s improved revenue outlook for 2015 on superior operating performance is also encouraging. Raytheon now expects revenue for 2015 in the range of $23.0 billion to $23.3 billion versus $22.7 billion to $23.2 billion expected earlier.
Zacks Rank
Raytheon currently has a Zacks Rank #3 (Hold). A better-ranked stock from the aerospace and defense equipment industry is TransDigm Group Incorporated TDG, holding a Zacks Rank #2 (Buy). Two other favorably ranked stocks from the broader aerospace and defense industry are The Boeing Company BA and General Dynamics Corporation GD, both carrying a Zacks Rank #2.
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