Raytheon (RTN) Secures $282M Contract to Upgrade DAS-4 MTS

Raytheon CompanyRTN recently clinched a deal for manufacturing and upgrading fiscal 2017 and 2018 DAS-4 Multi-Spectral Targeting Systems (MTS). Work related to the deal will be executed in McKinney, TX.

Details of the Deal

Valued at $281.9 million, the contract was awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, OH. Per the terms of the agreement, Raytheon will deliver 127 AN/DAS-4 MTS Model B (MTS-B) high definition/target location accuracy turrets and upgrade 40 DAS-1A to DAS-4 turret unit.

The deal also involves procurement of one lot of initial shop replaceable unit spares, one lot of production support - capacity increase and one lot of associated data.

The company will utilize fiscal 2016, 2017 and 2018 aircraft procurement funds to complete the task by Sep 30, 2020.

What's an MTS?

Raytheon's MTS are sensors that provide electro-optical/infrared (EO/IR), laser designation and laser illumination capabilities, all of which remain integrated in a single sensor package.Combat proven, with nearly four million operational flight hours, the MTS product family offers detailed intelligence data from the visual and infrared spectrum to support U.S. military, civilian and allied missions around the world.

These sensors feature multiple fields of view, electronic zoom and multimode video tracking and are designed to incorporate future growth options and performance enhancements.In particular, the DAS-4 variant of MTS incorporates major improvements over the prior versions that include, four high definition cameras covering five spectral bands, a three-color diode pump laser designator/rangefinder, laser spot search and track capability, automated sensor and laser bore sight alignment, three mode target tracker and built in provisions for future growth.

Our View

Increasing geo-political tensions across the globe have prompted nations, both developed and developing, to strengthen their defense systems manifold. Identifying threats beforehand has become crucial and sensors play a critical role in that. To this end, being a prime defense contractor in the United States, Raytheon's sensor systems hold a significant share of the U.S. sensor systems market.

The company's Intelligence, Surveillance and Reconnaissance Systems (ISRS) business unit designs, develops and manufactures an array of Multispectral EO/IR sensors, which offer customers with actionable information for strike, persistent surveillance and special mission platforms. These sensors aid in detection, identification, tracking, targeting, navigation, weather, and situational awareness tasks on a variety of airborne platforms.

To date, Raytheon has delivered more than 3,000 MTS sensors to U.S. and international armed forces and successfully integrated 44 variants of the system on more than 20 rotary-wing, Unmanned Aerial System, and fixed-wing platforms. This surely reflects the huge demand that these sensors have in the global defense space. These contribute significantly to Raytheon's top line.

Evidently, the company won orders worth $87 million for the next-generation Multi-Spectral Targeting System (MTS) for the U.S. Air Force during the first six months of 2018. The latest contract win boasts an even greater value, which thereby should instill increased top-line growth for the company in the second half of 2018.

Raytheon has lately unveiled a smaller, lightweight version of its MTS, Compact MTS, a sensor turret that sees in infrared and the visible spectrum and delivers detailed intel in high-definition, full motion video. Considering the combat proven viability of the earlier versions of Raytheon's family of MTS, we can expect the company to win notable contracts for the Compact version in the days ahead.

Price Movement

In a year's time, shares of Raytheon have gained 9.9% compared with the industry 's 18% growth. The underperformance may have been due to stiff competition that the company faces in the aerospace and defense industry.

Zacks Rank & Key Picks

Raytheon currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are Aerojet Rocketdyne AJRD ), Teledyne Technologies TDY and Ducommun DCO . While Aerojet and Teledyne sport a Zacks Rank #1 (Strong Buy), Ducommun carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Aerojet delivered an average positive earnings surprise of 9.27% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings moved 30.9% north to $1.27 over the past 60 days.

Teledyne came up with an average positive earnings surprise of 17.00% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings moved up 9.3% to $8.25 over the past 60 days.

Ducommun pulled off an average positive earnings surprise of 129.04% in the trailing four quarters. The Zacks Consensus Estimate for fiscal 2018 earnings rose 24.3% to 92 cents over the past 60 days.

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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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