Raytheon Company (RTN) announced that it has received a two-year contract, worth $81 million, from the U.S. Army. The two-year contract includes a one-year option period worth $18 million. Per the agreement, Raytheon will manufacture a modified edition of the Advanced Field Artillery Tactical Data System (“AFATDS”) for the nation’s ground forces.
The Advanced Field Artillery Tactical Data System forms a part of Raytheon’s Network Centric Systems (“NCS”). This net-enabled battle command is used for coordinating land and air indirect fire systems for maneuver operations. It is utilized by the defense forces to gather information to create a common operational picture.
These inputs enable them to plan, coordinate and control several battlefield elements including attack helicopters, close air support, field artillery cannons, mortars, Naval Surface Fire Support systems and rockets.
The AFATDS is widely used at all levels of the U.S armed forces and in allied defense establishments. In the U.S., this system is used by the U.S. Army weapons platoon to corps and the Marine Expeditionary Forces.
In addition, AFATDS is also used in Allied field artillery command and control (“C2”) systems including BATES in the UK, the French ATLAS, ADLER in Germany and the Italian SIR. To date, Raytheon has installed 5,100 systems worldwide.
Like its peer Lockheed Martin Corporation (LMT), Raytheon has been providing dedicated services to U.S Army from a long time. Recently, the company entered into an agreement, worth $3.1 million, with the U.S. Army as part of its Morphing Network Assets to Restrict Adversarial Reconnaissance (“MORPHINATOR”) program. This program utilizes cyber maneuvering techniques to prevent potential attacks in a high-risk environment.
Earnings Highlights & Guidance
In second quarter 2012, Raytheon’s earnings from continuing operations were $1.41 per share compared with $1.20 per share in the prior-year quarter. This was driven by operational improvements and capital deployment events. Reported earnings surpassed the Zacks Consensus Estimate of $1.21 per share.
Revenue was $5.99 billion, down 3.4% year over year from $6.20 billion in the year-ago period. Quarterly revenue missed the Zacks Consensus Estimate by $30 million.
In its earnings press release, Raytheon increased its 2012 earnings guidance to a range of $5.70–$5.85 per share from its previous expectation of $5.55 – $5.70 per share. On the other hand, the company maintained its sales guidance in a range of $24.5 – $25 billion for 2012.
The Zacks Consensus Estimates for Raytheon’s third quarter 2012 and full year 2012 earnings are $1.29 per share and $5.21 per share, respectively.
Our View
Raytheon enjoys steady order bookings and order backlog, an improving balance sheet, and increasing cash flow along with operational improvements. Year-to-date, Raytheon’s NCS segment has received contracts worth approximately $355.6 million from different defense establishments.
We believe that the company’s future growth depends on its diverse programs such as ISR unmanned systems, training, cyber security, Standard Missile-6, Patriot, Zumwalt and THAAD.
But we are skeptical about the U.S. defense budget, the fate of high-cost programs, risks related to key project executions and order cancellations.
Based in Massachusetts, Raytheon Company is one of the largest aerospace and defense companies in the U.S., with a diversified line of military products, including missiles, radars, sensors, surveillance and reconnaissance equipment, communication and information systems, naval systems, air traffic control systems, and technical services. Raytheon Company currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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