Raytheon Wins $83M Barracuda Mine Neutralization System Deal

Raytheon Company (NYSE:RTN) recently secured an $83.3 million contract from the Federal Business Opportunities website for designing, testing and deploying the Barracuda mine neutralization system. The contract was awarded by the Naval Sea Systems Command, Washington, DC.

Majority of operations related to the deal will be carried out in Portsmouth, RI and in DeLeon Springs, FL. Raytheon will utilize fiscal 2017 and 2018 research, development, test and evaluation (Navy) funds to partially finance the task. Work related to the deal is scheduled to be completed by November 2022. The cumulative value of the contract will amount to $362.7 million, if options included in the deal are exercised.

A Brief on the Barracuda Mine Neutralization System

A mine neutralizer is a small unmanned underwater vehicle (UUV), typically with an explosive warhead that navigates to the known location of an ocean mine located on the water's surface, tethered to the bottom, or attached to the ocean bottom.

The Barracuda mine neutralization system is an expendable, semi-autonomous UUV used to identify and neutralize bottom, near surface and drifting sea mines. The U.S. Navy expects it to be an expendable modular neutralizer consisting of a kill mechanism, propulsion, sensors, and communications buoy that enable wireless communication to the deployment platform.

What’s Favoring Raytheon?

Seaborne mines remain a major threat to naval and maritime forces worldwide. Raytheon’s mine neutralization system is specifically designed to counter such threats that neutralizes moored and bottom mines by using helicopters, which makes mine clearance safer.

As geopolitical tensions keep rising across the globe, there is a growing trend among nations worldwide to increase warfare budget for strengthening defense system. As a result, defense giants like Raytheon benefits a great deal as navy forces bank on mine neutralization systems for the safety of ships and submarines.

These in turn tend to boost the revenues of defense contractors like Raytheon. Evidently, the company recorded fourth-quarter 2017 revenues of $6,783 million that marks an 8% year-over-year growth. We expect the latest mine neutralization contract to drive the company’s revenues in the days ahead as well.

Moreover, in February 2018, President Trump proposed fiscal 2019 defense budget that provisions an investment of $5.8 billion on Ground Systems. Raytheon being one of the United States top missile makers was allocated $12.9 billion for missile defense. We believe these developments, along with the latest contract wins, will enable increased growth prospects for Raytheon in the days to come.

Price Movement

Raytheon’s stock has returned about 48.6% in the last 12 months, compared with the broader industry’s gain of 39.2%. The outperformance was primarily led by strong domestic and international sales along with a robust balance sheet.

Zacks Rank & Key Picks

Lockheed Martin (NYSE:LMT) carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Huntington Ingalls (NYSE:HII) , Curtiss-Wright Corporation (NYSE:CW) and Boeing (NYSE:BA) . While Curtiss-Wright sports a Zacks Rank #1 (Strong Buy), Huntington Ingalls and Boeing carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls recorded an average positive earnings surprise of 3.85% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by $4.94 to $17.38 in the last 90 days.

Curtiss-Wright recorded an average positive earnings surprise of 15.06% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 52 cents to $5.79 in the last 90 days.

Boeing posted an average positive earnings surprise of 20.69% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by $2.01 to $14.05 in the last 90 days.

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