Raytheon (RTN) Wins $300M Deal For Supplying TOW Missiles

Missile maker Raytheon Company’s (NYSE:RTN) business segment, Missile Systems, recently secured a contract for supplying Tube-launched Optically-tracked Wireless-guided missiles. These missiles will be provided to the U.S. Army, Marine Corps and foreign military sales customers.

Valued at $300.1 million, the contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL. Work related to the deal will be executed in Tucson, AZ and Farmington, NM. The company will utilize fiscal 2010, 2015, 2016 and 2017 other procurement, Army; foreign military sales; and American Recovery and Reinvestment Act funds to complete the task by Jul 31, 2020.

Tube-Launched Wireless Missiles

The tube-launched, optically-tracked, wireless-guided (TOW) weapon system comes with the multi-mission TOW 2A, TOW 2B Aero and TOW Bunker Buster missiles. These are the premier long-range, heavy assault-precision anti-armor, anti-fortification and anti-amphibious landing weapon system used throughout the world.

With its extended range of performance, the TOW missile is the long-range precision, heavy anti-tank and assault weapon system of choice for the U.S. Army Stryker, Bradley Fighting Vehicle, ITAS High-Mobility Multipurpose Wheeled Vehicle and Light Armored Vehicle-Anti-tank platforms. Upgrade programs will extend the missile’s life cycle beyond 2050. Raytheon has delivered more than 700,000 TOW weapon systems to the U.S. and allied warfighters.

The weapon system is deployed with more than 40 international armed forces and integrated on more than 15,000 ground, vehicle and helicopter platforms. It is also the most preferred heavy assault anti-armor weapon system for NATO, coalition, United Nations and peacekeeping operations worldwide.

Our View

With the increase in cyber-attacks, terrorism threats and geopolitical instability, there is an immediate need of all countries to elevate their level of security and defense. Major defense contractors in the nation like Raytheon, AeroVironment, Inc. (NASDAQ:AVAV) , Orbital ATK, Inc. (NYSE:OA) , Rockwell Collins, Inc. (NYSE:COL) are putting their best to make most of this opportunity and expand their business worldwide.

In particular, Raytheon’s Missile Systems segment has been clinching significant awards from the United States as well as international customers, courtesy of its high-end, combat-proven advanced arsenals. To this end, in August, 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.

Based on the 11% sales growth that this unit witnessed in the second quarter of 2017 and similar strong performance anticipated ahead, the company expects to see improved operating margin for this business in the second half of 2017. We believe the recently won award along with the similar ones, anticipated in the near future, will enable the company to achieve the target of its missile business growth.

Price Performance

Raytheon’s stock has returned 36.8% over the last year, outperforming the 34.5% rally of the industry it belongs to. This might have been caused by the earlier budget cuts inflicted by the U.S. government.

Zacks Rank

Raytheon currently carries 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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