Raytheon (RTN) Wins $634M Deal To Build Advanced AMRAAM

Raytheon Company’s (NYSE:RTN) Missile Systems business recently clinched a foreign military sales (FMS) contract worth $634.2 million for manufacturing the 31^st Lot of Advanced Medium-Range Air-to-Air Missile (AMRAAM). Work related to the deal is scheduled to be over by Jan 31, 2020.

Details of the Deal

The contract was awarded by the Air Force Life Cycle Management Center, Eglin Air Force Base, Florida. Per the terms of the agreement, the company will make other AMRAAM system items, including spares and telemetry kits, along with AMRAAM. The deal will cater to Japan, Korea, Morocco, Poland, Indonesia, Romania, Spain, Turkey, Bahrain and Qatar.

Fiscal 2017 production funds, research and development funds as well as fiscal operations and maintenance funds will be utilized to finance majority of the contract. Raytheon will carry out the production work at Tucson, AZ.

A Brief Note on AMRAAM

Raytheon’s AMRAAM is the world's most sophisticated air dominance weapon, with operational flexibility in a wide variety of scenarios, including air-to-air and surface-launch engagements. Its capabilities have been fully demonstrated in more than 4,200 test shots and 10 air-to-air combat victories.

As per Raytheon, in the air-to-air role, no other missile compares to the AMRAAM missile. The weapon's advanced active guidance section provides aircrew with a high degree of combat flexibility and lethality. This weapon has been procured by as many as 37 nations, including the United States. It has been installed in top-quality military jets like F-16, F-15, F/A-18, F-22, Typhoon, Gripen, Tornado and Harrier.

Its latest version, the AMRAAM-Extended Range missile is a new, ground-launched solution that will intercept targets at longer distances and higher altitudes.

Our View

With the increase in cyber attacks, terror threats and geopolitical instability, there is a pressing need to boost security and defense by all countries. Major defense contractors in the nation like Raytheon, AeroVironment, Inc. (NASDAQ:AVAV) , Orbital ATK, Inc. (NYSE:OA) and Rockwell Collins, Inc. (NYSE:COL) are trying their best to make the most of this opportunity and expand 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 arsenal. Toward this end, the company won a $302-million modification contract from the U.S. Navy for procuring 618 Joint Standoff Weapon (JSOW) air-to-ground missiles and related spare parts last month.

Based on the 10% sales growth at Missile Systems in third-quarter 2017 and the growing demand for Raytheon’s Integrated Air and Missile Defense portfolio in domestic as well as international markets, we expect this unit to scale new highs. This is further supported by the raised fourth-quarter sales outlook for this unit announced by Raytheon during the third-quarter earnings call.

Price Performance

Raytheon’s stock has returned 32.3% over a year, outperforming the 30.9% rally of the industry it belongs to. This may have been driven by rising demand for the company’s missile systems from the Gulf countries and Asia Pacific, apart from domestic customers.

Zacks Rank

Raytheonhas a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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