Raytheon Co. (RTN) has won a contract worth $14.2 million from the U.S. Navy to deliver the Ship Self Defense System (SSDS Mk 2) Open Architecture for four U.S. Navy ships and one land-based test facility. This award comes on the back of a $7.5 million contract modification for platform system engineering agent services for SSDS.
 
The contract will require Raytheon Integrated Defense Systems (IDS) to assemble, test and deliver upgraded hardware sets. The hardware sets will be integrated on board the Navy’s amphibious assault ship LHA 7, aircraft carriers USS Truman (CVN 75) and USS Ford (CVN 78), the amphibious transport dock ship LPD 26, and the Naval Air Systems Command test facility.
 
Work will be carried on at Raytheon IDS’ Expeditionary Warfare Center, San Diego, California, and at the Seapower Capability Center, Portsmouth.
 
Ship Self Defense System is an open, distributed combat management system for aircraft carriers and expeditionary warfare ship. It accelerates the detect-to-engage sequence to defend against anti-ship cruise missiles. The system links and automates standalone sensors and weapon systems to counter attacks. SSDS Mk 2 has an open architecture computing environment software having selected software components from the Total Ship Computing Environment Infrastructure developed for the DDG 1000 Zumwalt-class destroyer.
 
In a separate development, Raytheon also received a contract worth $59.2 million from the U.S. Navy for advanced procurement of critical components of the Aegis weapons system for DDG 114 and DDG 115, the two Arleigh Burke-class destroyers. This contract added yet another feather to the 30-year old partnership between Navy and Raytheon on the Aegis program.
 
Raytheon will supply advanced procurement materials and associated services for the AN/SPY-1D(V) transmitter group and MK99 Mod 8 Fire Control System. Raytheon’s radar and fire control system equipment is crucial for the Aegis weapon system’s ability to track and defend against multiple threats, including planes and missiles.
 
Work on the Aegis program is carried out at Raytheon IDS’ Surveillance and Sensors Center, Sudbury, Massachusetts, at the Seapower Capability Center, Portsmouth and at the Integrated Air Defense Center, Andover, Massachusetts.
 
Raytheon expects its fiscal 2010 revenues in the range of $25.9 billion to $26.4 billion. For fiscal 2010, earnings are projected in the range of $4.75 to $4.90. However, the company guidance lags the Zacks Consensus Estimate of $5 for fiscal 2010.
 
Raytheon has a diversified order backlog, consisting of more than 15,000 contracts and a strong revenue base, which greatly insulates its performance from cancellation, curtailment or deferment of programs. Also its focus on Intelligence, Surveillance and Reconnaissance (“ISR”) unmanned systems, training, cyber security, Standard Missile-6, Patriot, Zumwalt and THAAD is expected to fuel growth in the upcoming quarters.
 
Raytheon, however, books the majority of orders under defense-related programs of the U.S. Department of Defense. The company will be affected if the proposed reduction of U.S. defense expenses by $100 billion is carried out over the next five years. Thus, we maintain our Neutral recommendation on Raytheon. The quantitative Zacks #3 Rank for the company indicates no clear directional pressure on the shares over the near term.
 
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