Raytheon Company RTN won a $2.35 billion modification contract from the U.S. Missile Defense Agency (“MDA”) to build 52 Standard Missile-3 (“SM-3”) Block IB missiles.
The latest modification takes the overall contract value to $636.5 million from the initial figure of $604.0 million and has added 8 missiles to the contract over the original deal. The initial contract, valued at $540.9 million, was awarded in Apr 30, 2015 for 44 SM-3 Block IB missiles.
The latest contract will use fiscal 2015 funding. It includes three one-year options between fiscal 2016 and 2018 for the purchase up to 52 additional missiles every year.
Per the contract, Raytheon will procure the material, produce, test and deliver 52 SM-3 Block IB missiles; provide related all-up-round support; and perform recertification efforts.
Work is expected to be complete on Sep 30, 2021 and will be performed in Tucson, AR; and Huntsville, AL.
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. A recent test demonstrated that an SM-3 missile, launched from a ground facility, can successfully intercept a ballistic missile in space. The test is step toward the Pentagon’s long-term European Phased Adaptive Approach to build missile defense sites in Poland and Romania.
According to the U.S. and Romanian governments, work has been completed on a new U.S. missile defense site, located at south of Bucharest, which will defend against potential attacks from Iran and Russia. The site will begin operations in early 2016 and use the Aegis Ashore defense system.
We note that the Aegis Ashore site will use the new SM-3 Block IB missiles built by Raytheon. It features a powerful radar, missile interceptors and communications equipment built by Lockheed Martin Corp LMT and Raytheon.
Meanwhile, Raytheon has won two other contracts from the U.S. Air Force on Dec 18, one for the Cobra Dane radar, worth $77 million, and other one for its Predator (“MQ-1”) and Reaper (“MQ-9”) sensors, worth $49.5 million. It has also won a contract from the U.S. Navy worth $12.2 million and a foreign military sales contract from U.S. Army worth $74.6 million.
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 a superior operating performance is also encouraging. Raytheon now expects revenue for 2015 in the range of $23.0 billion to $23.3 billion from $22.7 billion to $23.2 billion expected earlier.
Zacks Rank
Raytheon currently has a Zacks Rank #2 (Buy). A couple of other favorably placed stocks from the aerospace and defense equipment industry are TransDigm Group Incorporated TDG and Orbital ATK, Inc. OA, both carrying the same rank as Raytheon.
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