Raytheon Company’s RTN Missile Systems (MS) business unit recently won a $93 million modification contract for the integration of Small Diameter Bomb II (SDB II) in F/A-18E/F aircraft. The contract was awarded by the Air Force Life Cycle Management Center, Eglin Air Force Base, Florida.
Details of the Deal
Per the terms of the deal, Raytheon will provide testing, analysis and support services along with the sustainment of SDB II weapon onto the F/A-18E/F platform with additional developmental and operational testing. Work related to the deal will be performed in Tucson, AZ and is expected to get completed by Jul 1, 2023.
Advantages of the SDB II Weapon
Raytheon’s StormBreaker bomb, formerly known as the Small Diameter Bomb II (SDB II), provides war fighters with the ability to hit moving targets in all-weather conditions, especially when the visibility is limited. The SDB-II is capable of three modes; a millimeter wave radar that detects and tracks targets through all weather, imaging infrared for improved target discrimination, and a semi-active laser allowing it to track lasers in the air or on the ground. Further, the weapon can fly more than 45 miles to strike mobile targets.
Due to such unmatched battlefield advantages, the U.S. Air Force and the U.S. Navy have begun StormBreaker bomb integration activities on the F-35 Joint Strike Fighter and the F/A-18E/F Super Hornet aircraft.
What’s Favoring Raytheon?
Increasing geo-political tensions across the globe have prompted nations to strengthen their defense systems manifold. With rapid technological upgrade, missile defense has steadily emerged to play a pivotal role for a nation’s defense strategy.
To this end, Raytheon’s advanced MS segment has been clinching significant awards from the United States as well as international customers, courtesy of its high-end, combat-proven arsenals. The latest contract win is an evidence to that.
Notably, the MS division recorded first-quarter 2018 net sales of $1,848 million, reflecting a 5% improvement from the year-ago quarter. We may expect the aforementioned contract to instill further growth in this segment, going ahead.
Furthermore, the recently approved U.S. fiscal 2019 defense budget includes a spending plan of $4.6 billion on Preferred Munitions. The budget proposal hints at a prospective increase in selection of Raytheon’s SDB II weapon by Pentagon that has been allotted $400 million. Such favorable budgetary developments reflect solid growth prospects for Raytheon’s SDB II program going ahead, which, in turn, are likely to boost the company’s profit margin.
Price Movement
Raytheon’s stock has gained 20.3% in the last 12 months, compared with the industry’s growth of 21.2%. The underperformance may have been caused due to tough competition in the market and political uncertainties.
Zacks Rank & Key Picks
Raytheon currently holds a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are Kratos Defense & Security Solutions KTOS, Transdigm Group TDG and CPI Aerostructures, Inc. CVU
While Kratos Defense & Security Solutions sports a Zacks Rank #1 (Strong Buy), Transdigm and CPI Aerostructures carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kratos Defense & Security Solutions delivered an average positive earnings surprise of 9.52% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 11.8% to 19 cents in the last 90 days.
Transdigm Group came up with an average positive earnings surprise of 1.96% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 4% to $17.66 in the last 90 days.
CPI Aerostructures delivered an average positive earnings surprise of 20.08% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 8.86% to 86 cents in the last 90 days.
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