Raytheon Gets $368M Navy Contract - Analyst Blog

Raytheon Company (RTN) received a $368 million, three-year, contract from the U.S. Navy to manufacture Standard Missile-6 (“SM-6”) systems.

The contract includes the production of missiles, spare parts, and system and design engineering efforts, to meet the requirements of the U.S. Navy.

SM-6 is capable of providing over-the-horizon air defense and takes full advantage of the kinematics available to the Standard Missile family, allowing the use of both active and semi-active modes and advanced fuzing techniques. The missile is designed to help ships protect themselves against various aircraft, including unmanned aerial vehicles and anti-ship missiles.

Raytheon stated that SM-6 is undergoing development testing presently and will go for operational testing in fiscal year 2011, with initial operational start-up by March 2011. The company plans to begin the delivery of the extended-range, anti-aircraft missiles in early 2011.

Raytheon, one of the largest aerospace and defense companies in the U.S., with its technological edge enjoys a strong presence in defense, homeland security and other government markets worldwide. It boasts a 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.

Going forward, the company’s focus on Intelligence, Surveillance and Reconnaissance (“ISR”) unmanned systems, training, cyber security, Standard Missile-6, Patriot, Zumwalt and THAAD is expected to fuel growth.

Furthermore, Raytheon remains well positioned driven by its 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. 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 expects its fiscal 2010 revenues in the range of $25.9 to $26.4 billion. Earnings per share (“EPS”) for fiscal 2010 are projected in the range of $4.75 to $4.90. However, this is below the Zacks Consensus EPS Estimate of $5.01 for fiscal 2010.

Defense contractors with significant exposure to high-cost platform programs include Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC) and General Dynamics Corporation (GD). We maintain our Neutral recommendation. RTN is currently a Zacks #3 Rank (‘hold’) stock.