) was awarded a $230.4 million contract modification from the
Missile Defense Agency for a sole-source cost-plus-incentive-fee
contract action. The addition to the contract consists of 14
Standard Missile-3 Block IA Missiles and 5 Standard Missile-3 Block
IB Missiles. The total value of this contract modification is
$230.4 million increasing the total contract value from $1.7
billion to $1.9 billion.
Work on the contract will be done in Tucson, Arizona. Raytheon
expects to finish work on the contract by September 30, 2014.
The Standard Missile-3 is a missile system used to intercept short-
to intermediate-range ballistic missiles as a part of Aegis
Ballistic Missile Defense System. SM-3 Block IA, the first variant
in the SM-3 family, is used in support of the first phase of the
administration's Phased Adaptive Approach ("PAA") for ballistic
missile defense. The SM-3 Block IB, the second variant of the SM-3
family, is an enhanced kinetic warhead seeker with excellent divert
and control system and a highly developed signal processing system.
It is the keystone of phase two of the administration's PAA.
Raytheon is one of the best-positioned companies among the
large-cap defense players due to its non-platform-centric focus, as
well as its strong order bookings and order backlog of more than
$33.9 billion at the end of the first half of 2012.
Earlier, in second quarter 2012, Raytheon's earnings from
continuing operations were $1.41 per share compared with $1.20 per
share in the prior-year quarter. This was driven by operational
improvements and capital deployment events. Reported earnings
surpassed the Zacks Consensus Estimate of $1.21 per share. Revenue
was $5.99 billion, down 3.4% year over year from $6.20 billion in
the year-ago period. Quarterly revenue missed the Zacks Consensus
Estimate by $30 million.
In its earnings press release, Raytheon increased its 2012 earnings
guidance to a range of $5.70-$5.85 per share from its previous
expectation of $5.55-$5.70 per share. On the other hand, the
company maintained its sales guidance in a range of $24.5-$25
billion for 2012.
Revenue and earnings growth continue to be driven by a 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. Also, its non-platform centric focus insulates it from
cancellation or deferral of any specific platform programs.
Looking forward, the company enjoys strong order bookings and order
backlog, an improving balance sheet, and growing cash flow, besides
operational improvements. Future growth will be driven by its focus
on ISR unmanned systems, training, cyber security, Standard
Missile-6, Patriot, Zumwalt and THAAD. The company presently
retains a short-term Zacks #3 Rank (Hold).
This is, however, offset by 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. Thus, over the
longer run, we maintain our long-term Neutral recommendation on the
Based in Massachusetts, Raytheon Company is one of the largest
aerospace and defense companies in the U.S., with 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. The company mainly competes with
L-3 Communications Holdings Inc.
FLIR Systems Inc.
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RAYTHEON CO (RTN): Free Stock Analysis Report
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