Raytheon Company’s RTN unit, Integrated Defense Systems (IDS), has won a foreign military sales (“FMS”) contract from the U.S. Army to provide training services to Qatar.
Details of the Contract
The contract is valued at $163.3 million. It was awarded by the Army Contracting Command, Fort Bragg, NC.
Per the contract, Raytheon will provide integrated air and missile defense; related miscellaneous training; English language training; a series of pre-PATRIOT military occupational specialty; and country-specific PATRIOT training classes to the Qatar Emeri Air Force service associates acknowledged for the program.
Work is scheduled to be complete by Apr 30, 2020 and will be carried out in Qatar. The contract will use fiscal 2016 other funds.
A Brief Note on Patriot
PATRIOT is a long-range, high-altitude, all-weather system designed to counter threats from tactical ballistic missiles, cruise missiles and advanced fighter aircraft. This missile defense system was successfully used during the 1991 Gulf War and Iraqi War.
Like the U.S. and its allies, other nations across the globe are utilizing advanced technology to strengthen their defense systems. Raytheon makes the popular Patriot missile defense interceptors and has consistently focused on upgrading this missile defense system in order to keep pace with the changing dynamics of modern warfare.
The company believes that growing interest in including a 360-degree active electronically scanned array radar to the Patriot Air Defense systems would lead to sales growth.
Why Raytheon?
Raytheon’s Patriot missile-defense systems have seen a number of buyers in recent times including international customers like Qatar and Korea. Moreover, the company is progressing on the Patriot opportunity in Poland. In Sep 2016, Poland signed a letter of request with the U.S. for an integrated air and missile defense system based on Patriot. It is expected that the country will sign a FMS agreement with the U.S. government in 2017. With the addition of Poland, Raytheon sees emerging opportunities in the European region.
Management earlier stated that the IDS division, which includes the Patriot program, will likely return to recording margins of 16–17% in the next 2–3 years as international volumes step up and development programs progress.
FMS contracts continue to be a vital growth driver for Raytheon. International bookings comprised 21% of total third-quarter bookings. During the third quarter of 2016, international sales were up 7.3%, representing 32% of total sales.
Price Movement
Raytheon’s stock has gained about 15.8% in the last one year, outperforming the Zacks categorized Aerospace-Defense Equipment industry’s gain of 14.1%. This could be because Raytheon is one of the best-positioned large-cap defense players due to its non-platform-centric focus. Rising demand from the Gulf countries and Asia-Pacific, and growth in FMS contracts added to the positives.
Zacks Rank & Key Picks
Raytheon currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the aerospace and defense space include Engility Holdings, Inc. EGL, Northrop Grumman Corporation NOC and General Dynamics Corporation GD.
On an average, Engility has delivered a positive earnings surprise of 23.19% in the trailing four quarters. The company’s 2016 earnings estimates increased 13.4% over the last 60 days. Engility sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Northrop Grumman carries a Zacks Rank #2 (Buy). The company’s 2016 earnings estimates were up just 0.1% in the last 60 days. On an average, the company has delivered a positive earnings surprise of 8.29% in the trailing four quarters.
General Dynamics, another Zacks Rank #2 stock, delivered a positive earnings surprise of 5.55% in the trailing four quarters. The company’s 2016 earnings estimates increased 0.2% over the last 60 days.
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