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Raytheon Wins $21M Air Force Deal to Upgrade AMRAAM Systems

Raytheon Company’s RTN Missile Systems (MS) business unit recently secured a $21-million modification contract to improve program software for its advanced medium range air-to-air missile (AMRAAM) systems. The unit will also be engaged in designing risk reduction efforts to counter threats.

Work related to the deal will be executed in Tucson, AZ. The deal was awarded by the Air Force Life Cycle Management Center, Eglin Air Force Base, FL.

A Brief Note on AMRAAM

Raytheon’s AMRAAM is the world's most sophisticated air dominance weapon. Its advanced active guidance section provides aircrew with a high degree of combat flexibility and lethality. Its advanced seeker design allows it to quickly find targets in the most combat challenging environments. The AMRAAM is used by 37 countries, including the United States.

What Favors Raytheon?    

In recent times, missile defense has steadily emerged to play a pivotal role in a nation’s defense strategy, due to increasing geo-political tensions across the globe. As a result, Raytheon, a prominent U.S. missile maker, has been clinching significant awards for upgrading its missile defense systems with latest technologies and for providing its end users with complex technical services. The latest acquired contact is one such example.

Such contract wins tend to boost revenue growth for the company’s MS business unit. Notably, the MS division recorded third-quarter 2018 net sales of $2,082 million, reflecting a 7% improvement from the year-ago quarter. Considering the latest deal and a few other contracts secured by the company in recent times, we may expect this segment to reflect similar top-line results in coming days as well.

Furthermore, the U.S. fiscal 2019 defense budget provisioned for major war fighting investments of $12.9 billion on missile defense. This should enable Raytheon to clinch more contracts related to missile defense systems and associated services, and in turn boost the company’s profit margin, going ahead.

Price Movement

Raytheon’s stock has lost 17.9% in the past 12 months, wider than the industry’s decline of 3.5%. The underperformance may have been caused by the tough competition the company faces in the defense market.



Zacks Rank & Stocks to Consider

Raytheon currently carries a Zacks Rank #3 (Hold).

A few better-ranked companies in the same sector are AeroVironment, Inc. AVAV, Heico Corp. HEI and The Boeing Company BA.

While AeroVironment sports a Zacks Rank #1 (Strong Buy), Heico and Boeing carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AeroVironment came up with average positive earnings surprise of 257.01% in the last four quarters. The Zacks Consensus Estimate for fiscal 2019 earnings has increased 33.3% to $1.48 in the past 90 days.

Heico’s long-term growth rate for the next 5 years currently stands at 12.10%. The Zacks Consensus Estimate for 2019 earnings has increased 4.00% to $2.08 in the past 90 days.

Boeing came up with average positive earnings surprise of 28.01% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has increased 4.53% to $18.22 in the past 90 days.

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