Raytheon (RTX) Wins Deal to Support ESSM and NSMS Programs

Raytheon Technologies Corp.RTX recently clinched a modification contract to provide support services for the Evolved Seasparrow Missile (ESSM) and NATO Seasparrow Missile Systems (NSMS) programs. The Naval Sea Systems Command, Washington, D.C. awarded the deal.

Details of the Deal

Valued at $55.1 million, this contract includes engineering and technical services to support the ESSM and NSMS programs. A major portion of the work related to this deal will be carried out in Tucson, AZ.

This contract will serve the U.S. government, and the governments of Japan and the United Arab Emirates under the Foreign Military Sales program. The work is scheduled to be completed by December 2022.

Significance of ESSM and NSMS

The ESSM program is developed by the U.S. Navy and nine other allied nations of the NATO Seassparrow Consortium. It will bring transformational anti-ship missile defense capabilities to the United States, NATO and other allies.

With 2,000 proven rounds in service or in production and another 1,500 rounds anticipated, the ESSM program is likely to be supported through 2030 and beyond.

Meanwhile, under the NSMS program, Raytheon Technologies provides the hardware and processing required for the launch and control of the U.S. Navy’s MK 29 and MK 73 missile systems.

Prospects For Raytheon Technologies

Nations across the globe are strengthening their defense capabilities amid rising geopolitical tensions. This resulted in huge defense spending by developed and developing economies on military arsenals and equipment. This, in turn, must have propelled demand for missile defense systems as nations hunt for the technologically advanced missile defense system to improve their weaponry and warfare capabilities. Consequently, this resulted in multiple contract wins for Raytheon Technologies, a prominent missile maker. The latest contract win is a testament to that.

Looking ahead, per the report from the Markets and Markets firm, the global missile defense system is anticipated to grow at a CAGR of 4.4% during the 2021-2026 period. This exhibits strong growth prospects for RTX, which might witness a solid inflow of orders involving missiles in the long run. This, in turn, should bolster its revenues from Raytheon’s Missiles and Defense segment.

Peer Growth

Considering the aforementioned growth prospects, defense majors who have forayed into the missile defense market are:

Lockheed Martin’s LMT Missiles and Fire Control develops, manufactures and supports advanced combat missiles and rockets. These serve military customers, including the U.S. Army, Navy, Air Force, Marine Corps, NASA and dozens of foreign allies.

Lockheed Martin’s long-term earnings growth rate is pegged at 3.6%. LMT’s shares have returned 1.7% in the past three months.

Northrop Grumman NOC develops and builds some of the world’s most advanced missile defense technologies. Ranging from command systems to advanced interceptors, powerful space sensors, directed energy weapons and the systems that test and verify their efficacy, Northrop Grumman entails to provide the most reliable, effective protection against traditional ballistic, emerging hypersonic threats.

Northrop Grumman has a long-term earnings growth rate of 8.9%. NOC’s investors have gained 26.2% in the past year.

The Boeing Company’s BA proven portfolio of precision air and missile defense solutions continues to set the industry standard for performance and affordability. Boeing’s missile system comprises Aegis Ballistic Missile Defense, Arrow, Avenger, Directed Energy, Ground-Based Midcourse Defense and PAC 3 Missile Seeker.

The long-term earnings growth rate of Boeing is pegged at 4%. Shares of BA have returned 7.7% to its investors in the last month.

Price Movement

In the past year, shares of Raytheon Technologies have rallied 20% compared with the industry’s growth of 10.6%.

Image Source: Zacks Investment Research

Zacks Rank

Raytheon Technologies currently carries a Zacks #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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