Raytheon (RTN) Wins $54M Deal For F/A-18 Aircraft Support

Missile maker Raytheon Company (NYSE:RTN) recently secured a modification contract to repair the Advanced Targeting Forward Looking Infrared System (ATFLIR), which is used to support the F/A-18 aircraft.

Valued at $54.2 million, the contract was awarded by the Naval Supply Systems Command Weapon Systems Support, Philadelphia, PA. Majority of the work related to the deal will be executed in McKinney, TX. The rest of the operations will be carried out in Jacksonville, FL and El Segundo, CA. The company will utilize fiscal 2018 working capital funds (Navy) to complete the task by December 2019.

A Brief Note on ATFLIR & F/A-18

Raytheon's ATFLIR assures success by integrating advanced sensors with one of the most powerful lasers on the market. It can locate and designate targets at day or at night from ranges of more than 40 nautical miles and altitudes exceeding 50,000 feet, outperforming comparable targeting systems. ATFLIR is a powerful net enabler that can pass tracking and targeting information to other nodes in the networked battlespace with speed and precision.

The Boeing Company’s (NYSE:BA) F/A-18 Super Hornet — a twin-engine, supersonic, all weather multirole fighter jet — is the U.S. Navy’s primary strike and air superiority aircraft. It is capable of landing and taking off from an aircraft carrier. A single-seat variant of the Super Hornet, F/A 18E, is about 25% larger than its predecessor — the F/A-18C/D — but contains 42% lesser structural parts.

Our View

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

Raytheon has a wide range of combat-proven defense product which helps it in securing scrumptious orders from both Pentagon as well as foreign allies. The company wins regular contracts from various sources, both domestic and international. To this end, Raytheon recently won a contract, worth $300.1 million, for supplying Tube-launched Optically-tracked Wireless-guided missiles. Earlier, in September, it secured a modification contract, worth $127.1 million, for procuring Excalibur Precision 155-mm Projectiles. Such contract wins will allow the company to boost top line in the future.

Based on the company's performance witnessed in the second quarter of 2017, it expects the same in the upcoming quarters. We believe that the recent contract win along with the other anticipated deals in the near future, will substantially boost the company’s growth trajectory, in days ahead.

Price Performance

Raytheon’s stock has returned 32.2% on a year-to-date basis, outperforming the 28.4% rally of the industry it belongs to. This could be because is one of the best-positioned large-cap defense players due to its non-platform-centric focus. Also, rising demand from the Gulf countries and Asia-Pacific boosts its revenues, which helps the company to grow.

Zacks Rank

Raytheon currently carries 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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