Raytheon Company (RTN) was awarded the Advanced Naval Cooling System (ANCS) contract by the Office of Naval Research for developing next-generation phase-change cooling system technology for the U.S. Navy.
Raytheon will develop system level solutions for implementing phase-change cooling technologies in future naval combatants. The two and a half year contract has a potential worth of $2.1 million if all options are exercised. Raytheon Integrated Defense Systems (IDS) segment will carry out the work as per the contract at Sudbury, Massachusetts .
Raytheon’s IDS segment focuses on sensors, command, control and communication, effects and mission support, to provide integrated naval, air and missile defense and civil security response solutions. Key domestic customers include the U.S. Navy, Army and Air Force, and the U.S. Missile Defense Agency. Key international customers include Japan, Saudi Arabia, United Arab Emirates, Taiwan, Australia, Germany, Korea and Finland.
Raytheon is one of the largest aerospace and defense companies in the U.S. It boasts of a well-diversified line of military products, including missiles, radars, sensors, surveillance and reconnaissance equipment, communication and information systems, naval systems, air traffic control systems and technical services.
Raytheon’s order backlog is quite diversified, consisting of more than 15,000 contracts. Its largest contract in fiscal 2009 was the Zumwalt Class Destroyer (DDG 1000) program, which accounted for less than 5% of the total net sales in 2009. A diversified revenue base greatly insulates its performance from cancellation, curtailment or deferment of programs. Raytheon ended the first quarter of 2010 with a backlog of approximately $37 billion compared with $36.9 billion at the end of fiscal 2009.
Raytheon is also focused on increasing shareholder value through incremental dividend, and ongoing share repurchases. In the first quarter of 2010, the company repurchased 5.5 million shares of its common stock for $300 million. Earlier in March 2010, it increased its annual dividend payout rate by 21% from $1.24 to $1.50 per share.
Raytheon expects its fiscal 2010 revenue in the range of $25.9 to $26.4 billion. EPS for fiscal 2010 is forecasted in the range of $4.75 to $4.90. However, this is below the Zacks Consensus EPS Estimate of $5.01 for fiscal 2010.
We continue to view Raytheon as one of the best positioned companies among the large-cap defense names due to its non-platform-centric focus, strong order bookings and order backlog, healthy cash flow generation and focus on shareholder value. Defense contractors with significant exposure to high-cost platform programs include Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC) and General Dynamics Corporation (GD).
However in the near-term we do not expect any upside since we feel all these positives have been factored in the current market price of the stock. Thus, we maintain our Neutral recommendation. RTN is currently a Zacks #3 Rank (‘hold’) stock.
Read the full analyst report on “RTN”
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Read the full analyst report on “NOC”
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