Aerospace and defense contractor Raytheon Co. (RTN) received its first task order under the Battle Command Development indefinite-delivery, indefinite-quantity (IDIQ) contract, worth $90 million. Under the contract, Raytheon will provide logistics support for the Battle Command Sustainment Support System (BCS3).
The support system aims at facilitating better awareness and faster decision-making for war-fighters. The BCS3 support system is able to handle large volumes of data pertaining to logistical, personnel and medical to help war-fighters.
Raytheon, with the support of its teammates Tapestry Solutions, INTECON and Software Professional Solutions, will supply necessary field support, help desk, system and server maintenance, and training to users fielded in locations around the globe.
Raytheon hopes this contract would help it win similar contracts under the program in future. This contract includes an 11-month base period and two 12-month option periods through March 2013.
Provider of a diversified line of defense products, Raytheon reported adjusted earnings of 56 cents in the second quarter of 2010, way below the Zacks Consensus Estimate of $1.19 and year-ago earnings of $1.24. The decline was mainly attributed to the cancellation of its U.K. e-Borders contract. However, the company ended the first half of 2010 with a strong order backlog of roughly $36 billion. The Zacks Consensus Estimate is currently pegged at $4.27 for fiscal 2010 and $5.26 for fiscal 2011.
Going forward, we believe the new stream of orders received by Raytheon will allow it to repair the damage caused by the loss of the e-border contract. Future growth at the company will be driven by its focus on ISR unmanned systems, training, cyber security, Standard Missile-6, Patriot, Zumwalt and THAAD.
However, apprehensions over future growth of the U.S. defense budget, the fate of high-cost programs, and risks related to key projects execution, may limit upside of the stock. Consequently, we retain our long-term Neutral recommendation on the stock, supported by the short-term Zacks #3 Rank (Hold).
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