Raytheon (RTN) Wins Contract for MK-31 Guided Missile Program

Raytheon Company’s RTN Missile Systems segment recently secured a modification contract to exercise options for design agent and engineering support services for the Rolling Airframe Missile (RAM) upgraded MK-31 Guided Missile Weapon System Improvement program.

Valued at $22.6 million, the contract was awarded by the Naval Sea Systems Command, Washington, D.C. Per the terms of the agreement, Missile Systems will support maintenance of current weapon system capability. It will also help resolve issues through design, systems, software maintenance, reliability, maintainability, quality assurance and logistics engineering services.

Work related to the contract will be executed in Tucson, AZ, and Louisville, KY. The company will utilize fiscal 2018 funds procured from the U.S. Navy, German foreign military sales (FMS), Egyptian FMS and Qatar FMS to complete the task by September 2019.

Note on MK-31 Guided Missile Weapon System

The MK-31 RAM Guided Missile Weapon System is a cooperative development and production program conducted by the U.S. and the Federal Republic of Germany, under a memorandum of understanding. Manufactured by Raytheon, this weapon system is the most modern self-defense weapon system, deployed from ships, to destroy anti-ship missiles. It has been specifically designed to provide protection to ships of all sizes.

Our View

Raytheon’s Missile Systems segment has been gaining significant awards from the United States as well as international customers, courtesy of its high-end, combat-proven advanced arsenal. In August 2017, the company won a $614.5-million worth modification contract from the Missile Defense Agency for manufacturing 17 Standard Missile-3 (SM-3) Block IIA missiles.

On the international front, the company is witnessing growing demand for missile defense systems in Europe on increased global threat dynamics as well as rising tensions between Saudi Arabia and Iran. In November 2017, Reuters reported that the Swedish government is willing to spend more than $1 billion on Raytheon's Patriot surface-to-air defense missile system. Raytheon is also building missiles that may be utilized by the U.S. government to counter an attack by North Korea.

Meanwhile, the defense industry received a boost from the U.S. Senate approval of the fiscal 2018 defense policy bill worth $700 billion this September. This bill provides about $640 billion for Pentagon’s main operations like buying weapons and paying troops. We believe the raised budget will certainly draw more contracts for defense major like Raytheon and also help it achieve its missile business targets. The latest contract is an example of that.

Price Performance

Shares of Raytheon have rallied about 33.8% in a year, compared with the broader industry’s 29%. The growing demand for missile defense systems and approval of the fiscal 2018 defense policy bill boosted the overall performance.

 

 

Zacks Rank & Key Picks

Raytheon carries a Zacks Rank #3 (Hold). A few better-ranked stocks from the same sector are Teledyne Technologies Incorporated TDY, Leidos Holdings, Inc. LDOS and Huntington Ingalls Industries, Inc. HII. While Teledyne Technologies sports a Zacks Rank #1 (Strong Buy), Leidos Holdings and Huntington Ingalls carry a Zacks Rank #2 (Buy). You can see

the complete list of today’s Zacks #1 Rank stocks here.

Teledyne Technologies posted an average positive earnings surprise of 37.17% for the past four quarters. The Zacks Consensus Estimate for current-quarter earnings rose by 45 cents over the last 60 days.

Leidos Holdings has an average positive earnings surprise of 14.81% for the last four quarters. The Zacks Consensus Estimate for current-year earnings has improved by 14 cents in the past 60 days.

Huntington Ingalls posted an average positive earnings surprise of 14.22% for the last four quarters. The Zacks Consensus Estimate for current-year earnings has risen by 48 cents in the past 60 days.

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