Raytheon (RTN) Wins $113M Deal For Standard Missile Services

Raytheon Company’s (NYSE:RTN) unit, Missile Systems, has won a contract from the U.S. Navy to provide engineering and technical services for Standard Missile (“SM”). These missiles will be used by the Navy, other government agencies and foreign military sales from fiscal 2017 through 2021.

Details of the Contract

The contract is valued at $113.2 million and includes options which would take the cumulative value of this contract to $466.5 million, if exercised. It was awarded by the Naval Sea Systems Command, Washington, D.C.

Per the contract, Raytheon will provide services including research and development efforts; design, systems and production engineering; technical services; evaluation services; component improvement services and production proofing services for missile producibility, missile production and shipboard integration for SM 2, 3, and 6.

Work is scheduled to be completed by Apr 2022. Majority of the work will be carried out in Tucson, AZ; while the rest in various locations across the U.S. The contract will use fiscal 2017 research, development, test and evaluation (Navy) and fiscal 2017 weapons procurement (Navy) funds.

A Brief Note on Standard Missiles

SM-2 is the world's leading fleet-area air defense weapon. It provides protection against a wide range of advanced threats. It has been integrated with both Aegis and non-Aegis combat weapon systems that provide high- and low-altitude intercept capabilities and performance against advanced anti-ship missile threats. The SM-2 also has a secondary anti-surface ship mission, and uses tail controls and a solid-fuel rocket motor for impulsion as well as maneuverability.

Since long, SM-2 has been the primary surface-to-air fleet-air defense weapon of choice for U.S. Navy. In fact, it has been deployed by the U.S. and eight allied navies. The U.S Navy has committed to continue to consign for SM-2 over the long term. This contract proves that it still continues to keep these missiles in their stock.

The SM-2 family continues to grow internationally. Countries like Australia, Canada, Germany, Japan, Korea, the Netherlands, Spain and Taiwan have deployed surface combatants. Moreover, several other navies are executing ship configurations to support SM-2 applications.

The SM-3 is a ship-based missile system used by the U.S. Navy to intercept short- to intermediate-range ballistic missiles as a part of Aegis Ballistic Missile Defense System. SM-3 Block IA, the first variant in the SM-3 family, is used in support of the first phase of the administration's Phased Adaptive Approach (“PAA”) for ballistic missile defense.

The SM-6 is a surface-to-air supersonic missile capable of successfully engaging manned and unmanned aerial vehicles and fixed- and rotary-wing aircraft. It provides the warfighter with the enhanced capability to detect targets beyond line of sight. In addition, the missile defends against land-attack and anti-ship cruise missiles in flight. Deployed in 2013, SM-6 provides additional strength to defense personnel in hostile situations.

Furthermore, SM-6 leverages the legacy Standard Missile airframe and propulsion elements, while incorporating the advanced signal processing and guidance control capabilities of Raytheon's Advanced Medium-Range Air-to-Air Missile.

Raytheon has already delivered more than 160 SM-6 missiles to the U.S. Navy. This missiles’ unique ability to neutralize threats had made it the most desired one among the combatant commanders, who want many of these interceptors to be installed in their ships.

In Jan 2017, the U.S. Department of Defense authorized sales of the SM-6 missile to a number of international customers, many of whom were looking for the multi-mission missile to support their shipbuilding programs.

Why Raytheon?

Raytheon’s advanced Missile Systems division enables it to win consistent orders from the U.S. as well as international customers. Like the U.S. and its allies, other nations across the globe are also utilizing advanced technology to strengthen their defense systems. Thus, foreign military contracts are a vital growth driver for the company. Evidently, Raytheon’s fourth-quarter international bookings comprised 38% of its total bookings. During the quarter, international sales were up 5.6%, representing 31% of total sales.

Moreover, the company has been enjoying a steady stream of contracts from government establishments. In March, Raytheon has won a modification contract worth $199.8 million from the U.S. Navy to procure 317 of the 17th Lot of AIM-9X Block II missiles – 107 for the Navy and 210 for the Air Force.

Price Movement

Raytheon’s stock gained about 20.1% in the last twelve months, outperforming the Zacks categorized Aerospace-Defense Equipment industry’s gain of 14.7%. This could be because rising demand from MENA or the Middle East and North Africa region, and growth in FMS contracts are driving the stock. The company also poses strong competition to its peers including Ducommun Incorporated (NYSE:DCO) , Curtiss-Wright Corporation (NYSE:CW) and Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) .

Zacks Rank

Raytheon currently 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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