We have maintained our Neutral recommendation on
) on Jul 5, 2013 based on its international exposure, strong
order bookings and order backlog, cash deployment strategy, and
cost reduction initiatives. However, the budget pressure
compels us to remain on the sidelines.
Why the Reiteration?
Raytheon is one of the best-positioned companies among the
large-cap defense players due to its non-platform-centric focus.
This insulates the company from program specific risk related to
cancellation or deferral of any specific program.
Going forward, revenue and earnings growth would continue to be
driven by its strong presence in the areas of Intelligence,
Surveillance and Reconnaissance; air & missile defense
systems; border security; air traffic management; training and
homeland security; and cyber security.
International sales continue to be a key source of sales for the
company. The company believes that it is progressing well on
opportunities like Kuwait Patriot, the Oman ground-based air
defense system, as well as radars and missiles.
With growing threats to the environment and demand from customers
to acquire the most advanced technologies in the world, the
company is confident that the international portfolio will
continue to be strong.
In order to offset the budget pressure, the company is
aggressively pursuing cost-containment measures, making
acquisitions, consolidating its business, and driving the
international mix higher, thereby maintaining an industry-leading
operating margin. Recently, Raytheon reorganized its business
through segment realignment. The new structure will drive
productivity, agility and affordability in a challenging defense
and aerospace market environment.
Also, Raytheon's under-leveraged balance sheet provides financial
flexibility in matters of incremental dividend, ongoing share
repurchases and earnings accretive acquisitions. In Mar 2013, the
company raised its regular quarterly dividend by 10% from 50
cents per share to 55 cents per share (annualized $2.20 per
share) generating a dividend yield of 3.34%.
Despite the positives, apprehensions over future growth of the
U.S. defense budget, the fate of high-cost programs, risks
related to key project executions and order cancellations keep us
Other Stocks to Consider
Stocks worth considering are
Erickson Air-Crane Inc.
The Boeing Company
Northrop Grumman Corp.
). While Erickson Air-Crane carries a Zacks Rank #1 (Strong Buy),
The Boeing Company and Northrop Grumman hold a Zacks Rank #2
BOEING CO (BA): Free Stock Analysis Report
ERICKSON AIR-CR (EAC): Free Stock Analysis
NORTHROP GRUMMN (NOC): Free Stock Analysis
RAYTHEON CO (RTN): Free Stock Analysis Report
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