Defense Cuts Slow Raytheon, Lockheed Sales


Defense budget cuts are hitting U.S. defense contractors' sales growth, but their dividends are still on target.

Raytheon ( RTN ) on July 24 reported second-quarter adjusted earnings that fell 14% to $1.41, missing views. Sales topped forecasts but slid 7% to $5.7 billion amid declines in Raytheon's Integrated Defense Systems and Missile Systems units.

The Waltham, Mass.-based defense contractor has seen more business from overseas customers as U.S. military spending slows. But on Thursday, it received a $52 million award from the U.S. Army to continue producing its Excalibur Ib precision guided projectile.

Earnings growth slowed to the single digits the past three years; still, earnings have risen each year since 2004. Raytheon's three-year Earnings Stability Factor of 3 on a scale of 0 (most stable) to 99 (most volatile) reflects those steady gains. Despite recent downward revisions, analysts expect profit growth to continue at 8% this year and 13% the next.

Raytheon has increased its quarterly dividend payout each year from 20 cents a share in 2004 to its current 60.5 cents, which works out to $2.42 for the full year. That translates to a 2.7% annualized yield, ahead of the S&P 500's 1.94%.

The stock is building the bottom of a flat base that it started in early March. If it continues basing to shape the right side, the potential buy point would be 102.43. But Raytheon has some work to do, since it remains below both its 10-week and 40-week moving average lines.

Another government defense contractor,Lockheed Martin ( LMT ), beat Q2 sales and profit forecasts on July 22. The Bethesda, Md.-based F-35 maker also owns a three-year Earnings Stability Factor of 3. It's boosted its quarterly payout from 11 cents a share in 2000 to $1.33 for a 3.4% annual yield.

The stock is hovering near a 168.97 flat-base buy point, which it initially cleared July 24 in above-average volume.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas

Referenced Stocks: RTN , LMT

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