Raytheon (RTN) Wins $20M Air Force Deal To Build MTS Sensors

Defense behemoth, Raytheon Company (NYSE:RTN) , has secured a contract for production of Multi-Spectral Targeting System (MTS)-B AN/DAS-1A. Work related to this deal will be carried out in McKinney, TX.

Valued at $26.6 million, this contract was awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, OH. Per the terms, Raytheon will provide the MTS turrets. The contract includes foreign military sales (FMS) and is scheduled to be completed by Nov 1, 2019.

A Brief Note on MTS

Raytheon’s MTS family of sensor solutions provides superior detecting, ranging and tracking for military forces worldwide. It provides electro-optical/ infrared (EO/IR), laser designation, and laser illumination capabilities integrated in a single-sensor package.

The sensors are combat proven, with nearly four million operational flight hours. These sensors supply detailed intelligence data from the visual and infrared spectrum in support of the U.S. military, civilian and allied missions worldwide. MTS-B AN/DAS-1A is one variant of this family of sensors. AN/DAS-4 is the latest model that incorporates greater fire control and Target Location Accuracy technology for precise coordinates.

To date, Raytheon has delivered more than 3,000 MTS sensors to the U.S. and international armed forces. Moreover, it has successfully integrated 44 variants of the system on more than 20 rotary-wing, Unmanned Aerial System, and fixed-wing platforms. These include the MH-60 Blackhawk, the C-130 Hercules, the MQ-9C Reaper, the MQ-1 Predator, and the MQ-1C Gray Eagle.

What’s Favoring Raytheon?

Increasing cyber-attacks, terrorism threats and enhanced geopolitical instability are pushing focus toward electronic warfare, C4ISR (Command, Control, Communication, Computers, Intelligence, Surveillance and Reconnaissance) and cyber security. In this context, the Trump administration’s fiscal 2017 appropriation budget request includes funding worth $7.2 billion for operations and maintenance. Its purpose is to address urgent readiness shortfalls across the joint force, including improvements in cyber intelligence capabilities. Also, Trump’s proposed fiscal 2018 budget allocates $1.5 billion for Homeland Security to tackle cyber attacks, including protecting critical infrastructure.

Naturally, the time is ripe for defense contractors like Raytheon, which deal in cyber-security products, to expand by making the most of the current situation. Being one of the best-positioned large-cap defense players due to its non-platform-centric focus, the company has been heavily investing in technological upgrades. Raytheon aims to offer the best-in-class security solutions to the U.S. Department of Defense.

Rising political conflicts and regional tensions have been driving FMS demand for the U.S. defense contractors. For Raytheon, FMS has been a proven and vital growth driver. Evidently, its international sales rose 7.5%, representing 32% of total sales. In this line, last week, Raytheon’s Missile Systems unit won a Navy contract, which covered FMS, to procure full-rate production requirements and spares for fiscal 2017 Standard Missile-2 (SM-2) (read more: Raytheon Secures $618M FMS Contract from Navy for SM-2).

We believe that the recent contract for MTS, along with the aforementioned development, reflects how Raytheon’s efforts to expand its cyber-security business are met by contracts awarded to it, indicating more growth for the company.

Price Movement

Raytheon’s stock rallied about 21.5% in the last one year, outperforming the Zacks categorized Aerospace/Defense Equipment industry's gain of 19.0%. This could be because of rising demand for its defense equipments from the Middle East and North Africa region (MENA), and growth in FMS contracts. Additionally, the company poses strong competition to its peers, including Ducommun Incorporated (NYSE:DCO) , Triump Group, Inc. (NYSE:TGI) and Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) .

Zacks Rank

Raytheon currently holds a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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