Defense contractor Raytheon Co. ( RTN ) won a contract to supply radar systems to the U.S. Navy for the Aegis program. Raytheon, which is producing these systems for decades, said the multi-year order from the Navy is worth $406 million.
The contract calls for Raytheon to supply AN/SPY-1 radar transmitters and MK99 Fire Control Systems for the aforementioned program. Aegis is an improved weapons system installed on U.S., Japanese, Korean and Norwegian ships in order to protect against airborne threats, including ballistic missiles.
Both these systems are an essential part of the Navy's Aegis missile defense system. Over the past 32 years, these systems are in continuous production and are in use aboard 109 warships worldwide, comprising 17 ships sailed by foreign nations.
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 $32.2 billion at the end of the third quarter 2013. New bookings in the quarter were $5.7 billion. Raytheon has been known for introducing high-tech engineering and systems support capabilities to the U.S. defense.
In addition, Raytheon is progressing well on its numerous programs, namely, the Standard Missile-3 (SM-3) missile interceptor, the Advanced Medium-Range Air to Air Missile, the SM-2 and SM-6 ship defense missiles, Javelin anti-tank missile, Rolling Airframe Missile, Small Diameter Bomb II and Tactical Tomahawk. Successful completion of these programs will enable it to get more orders in the future.
Recently, the defense player's third quarter earnings came up above our expectation driven by strong program execution. It also boosted its 2013 sales guidance to the range of $23.6-$23.8 billion from its prior expectation of $23.5-$23.7 billion. Importantly, the company raised its adjusted earnings per share guidance to a range of $6.10 to $6.20 from $6.00 to $6.10 earlier. The defense major also hiked its operating cash flow from continuing operations forecast to the range of $2.2 billion to $2.4 billion for full-year 2013 from its earlier forecast of $2.1-$2.3 billion.
Hence sequestration or budget cut notwithstanding, this defense contractor seems to be performing well, currently pursuing cost-containment measures and is consolidating its business to ward off the U.S. defense budget pressure. These initiatives will enable the company to improve its margins, going forward.
Raytheon currently holds a Zacks Rank #1 (Strong Buy). One can also consider Lockheed Martin Corp. ( LMT ), Huntington Ingalls Industries, Inc. ( HII ) and General Dynamics Corp. ( GD ) as good buying opportunities. These defense operators hold a Zacks Rank #2 (Buy).