Raytheon Company RTN recently secured a foreign military sales (FMS) contract from the U.S. Air Force for conducting Surveillance Radar Program operations. The deal is valued at $333.4 million. Work related to this agreement will be carried out in Massachusetts.
The contract also includes maintenance follow-on sustainment package that incorporates contractor logistics support (sustainment); engineering services and technical updates to address equipment obsolescence. It also encompasses transportation and material costs associated with contractor repair and return services; spare and repair parts; support and test equipment; publications and technical documentation personnel training and training equipment; government and contractor engineering; technical and logistics support services; and other related elements of logistical and program support.
A Brief Note on Radar Systems
Raytheon’s diverse product portfolio offers a wide range of radar systems that is utilized by the different divisions of the U.S. Department of Defense. For the U.S. Air Force, Raytheon’s 3D Expeditionary Long-Range Radar offers the first U.S. systems built from the ground-up with exportability in mind. This radar’s concurrent design enables more cost effective and timely fielding of systems for U.S. forces, allies and security partners. This radar enables war fighters to affordably detect, identify and track a wide variety of objects accurately from great distances.
Apart from this, the company’s radar product line includes Enterprise Air Surveillance Radar that simultaneously offers anti-air and anti-surface warfare, electronic protection and air traffic control capabilities to aircraft carriers and amphibious warfare ships.
What’s Favoring Raytheon?
With the increase in cyber attacks, terror threats and geopolitical instability, there is an immediate need for all countries to elevate their level of security and defense. Major defense contractors in the nation like Raytheon, AeroVironment, Inc. AVAV, Orbital ATK, Inc. OA and Rockwell Collins, Inc. COL are putting their best to make the most of this opportunity and expand worldwide. While surveillance plays a vital role in maintaining a nation’s security, upgraded radar systems form an integral part of those surveillance programs.
Raytheon, being a producer of a wide range of next-generation radars, enjoys a pioneering position in the surveillance radar market. Its Intelligence, Information and Services (IIS) business segment specializes in global Intelligence, Surveillance and Reconnaissance (ISR); cybersecurity; analytics; training; logistics; mission support; engineering; automation and sustainment solutions.
Although this segment saw a mere 1% sales growth during the third quarter of 2017, management expects substantial improvement in 2018 backed by solid demand in domestic as well as international markets. In particular, FMS contracts continue to be a vital growth driver for Raytheon as is evident from the fact that 32% of its third-quarter sales came from overseas.
As far as demand for Raytheon’s radars in the international market are concerned, management continues to see significant additional demand for early warning radars as well as TPY-2 X-Band radars in the 2018 to 2020 period. We believe the latest contract from the U.S. Air Force further supports this expectation.
Price Performance
Raytheon’s stock has returned 14.2% over last six months, underperforming the 16.2% rally of the industry it belongs to. This might have been caused by stiff competition that the company faces in domestic as well as overseas markets.
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Zacks Rank
Raytheon has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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