Raytheon Co. (RTN) won three back-to-back defense contracts yesterday with a total value of $195.9 million from Pentagon’s total funding of $712.1 million.
Worth $172.7 million, the largest contract calls upon Raytheon to manufacture and deliver the AN/TPY-2 Radar #12 with associated spares. This is a modification contract whose delivery will be extended from Dec 2013 through Mar 2016. The contract value can potentially climb to $753.4 million.
The second contract, worth $16.3 million, is another modification to a prior contract for maintenance work on U.S. Navy Standard Missiles, and all-up-round recertifications of the same. All work under the contract is slated to be completed by Dec 2014.
As per the third contract, Raytheon will provide follow-on support related to system upgrades under the Taiwan Surveillance Radar program. This contract modification is worth $6.9 million and is expected to be complete by Nov 8, 2017. Raytheon in this foreign military sales contract is creating a controlled site-like testing environment for "build deployment" and system troubleshooting for the Taiwanese system.
Investors may rightly be worried about the fate of the defense industry in the U.S. However, Raytheon and other leading contactors like Lockheed Martin Corp. (LMT) have emerged relatively unscathed so far, thanks to foreign contracts as well as small regular DoD contracts.
Recently, Raytheon received the green light from Pentagon for the sale of some 15,000 anti-tank missiles to Saudi Arabia under two separate deals. Pegged at a combined value of $1.1 billion, the anti-tank missiles will be used to counter terrorism in this very politically volatile region.
Apart from these important deals, Raytheon’s business consolidation efforts will also provide successful cost-saving solutions, leading to an expanding operating margin in the long term.
The Massachusetts-based defense contractor – Raytheon – currently holds a Zacks Rank #1 (Strong Buy). Other stocks worth considering in the defense sector include The Boeing Co. (BA) and Huntington Ingalls Industries, Inc. (HII). Both presently carry a Zacks Rank #2 (Buy).
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