Raytheon Arm Wins $302M Deal to Boost Saudi Arabia's Defense

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Raytheon Company 's RTN business unit, Missile Systems, recently secured a modification contract worth $302.4 million under the Foreign Military Sales program. Work related to this deal is scheduled to be over by June 2022.

Details of the Deal

The contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Per the terms of the agreement, Raytheon will procure 618 Joint Standoff Weapon (JSOW) air-to-ground missiles (AGM-154 Block III C), containers, component parts/support equipment (spares) and engineering technical assistance. These weapons and associated support will be provided to the government of Saudi Arabia.

Majority of the work will be executed in Tucson, AZ; Glascoed, Wales, U.K. and Dallas, TX; while the rest will be carried out in Glasgow, Scotland, UK and various other U.S. locations. FMS funds will be utilized to partly fund the order.

A Brief Note on AGM-154

The JSOW AGM-154 is a family of low-cost, air-to-ground glide missiles (AGM) manufactured by Raytheon. These missiles employ an integrated GPS-inertial navigation system and thermal imaging infrared seeker.

The JSOW-C-1 - a variant of this missile - also known as a JSOW Block III, provides upgraded capability to strike moving land and maritime targets. A modification to the existing JSOW C weapon, this variant adds a weapon datalink radio and modified seeker software to increase capability for the anti-surface warfare mission.

Our View

With the recent rise in cyber-attacks, terrorism threats and geopolitical instability, demand for advanced weaponries across the globe has increased over the last few years. As a result, with the United States being the largest supplier of arms and ammunitions, major defense contractors of this nation has been witnessing a scrumptious inflow of orders from domestic as well as international customers.

Of late, the frequent counter-missile testing between the United States and North Korea has provided impetus to the country to ramp up their defense inventories. Needless to say, this has benefitted the country's major missile-makers as well as those offering modification services associated with these missiles like Raytheon, Orbital ATK, Inc. OA , Lockheed Martin Corp. LMT and Northrop Grumman Corp. NOC .

Coming to Raytheon's performance specifically, its Missile Systems segment has been clinching significant awards from the United States as well as international customers, courtesy of its high-end, combat-proven advanced arsenals. To this end, in October, the company won a $300-million worth contract for supplying Tube-launched Optically-tracked Wireless-guided missiles. Based on the 10% sales growth that this unit witnessed in the third quarter of 2017 and the continuous flow of contracts it's being winning including the latest one, we may expect to see similar performance in days ahead.

Moreover, per Markets and Markets research firm, the global rocket and missile market is projected to grow at a CAGR of 4.74% during 2017-2022 to reach a value of $70 billion by 2022. This further reflects substantial growth prospects for renowned missile-maker like Raytheon.

Price Performance

Raytheon's stock has returned 31.3% over a year, outperforming the 25.9% rally of the industry it belongs to. This may have been driven by rising demand of the company's missile systems from the Gulf countries and Asia-Pacific, apart from domestic customers.

Zacks Rank

Raytheon currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

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

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

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