Zacks_Analysts' Blog : Raytheon Gets Air Force Contract - Analyst Blog

Raytheon Company (RTN) was awarded a $12.6 million U.S. Air Force contract to provide Helmet Mounted Integrated Targeting (HMIT) system for the Air Force and Air National Guard using the A-10C and F-16C Block 30/32 aircraft. The company has teamed with Gentex Corporation (GNTX) to produce the system. The system will be based on Gentex's Visionix Scorpion Helmet Mounted Cueing System. The program includes five one-year production options potentially valued up to $50 million.

 

Raytheon and Gentex will focus on developing the HMIT system, which will display crucial information in high-resolution color imagery directly in the pilot's line of sight. Information displayed will include weapons-cueing, targeting and situational awareness information, including data from on-board and remote sensors.

 

The system will track helmet movement to display accurate imagery regardless of the direction the pilot's head is turned, and it will be fully compatible with U.S. military-standard airborne night vision systems.

 

Gentex headquartered in Simpson, Pennsylvania, is a helmet-mounted display innovator and the world's leading producer of helmets for military aircrews. Raytheon is one of the largest aerospace and defense companies in the U.S. It boasts of a well-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.

 

Raytheon’s order backlog is quite diversified, consisting of more than 15,000 contracts. A diversified revenue base hedges Raytheon against cancellation, curtailment or deferment of programs. Raytheon ended the first quarter of 2010 with a backlog of approximately $37 billion compared with $36.9 billion at the end of fiscal 2009.

 

Raytheon expects its fiscal 2010 revenues in the range of $25.9 – $26.4 billion. EPS for fiscal 2010 is projected in the range of $4.75 – $4.90. However, this is below the Zacks Consensus EPS Estimate of $5.01 for fiscal 2010.

 

Raytheon is slated to release its second quarter results of fiscal 2010 on July 29, 2010. The Zacks Consensus EPS Estimate for the quarter is currently $1.19, lower than the year-ago quarterly earnings of $1.24 per share.

 

We continue to view Raytheon as one of the best positioned companies among the large-cap defense primes due to its non-platform-centric focus, strong order bookings and order backlog, healthy cash flow generation and focus on shareholder value. Its prime competitors are FLIR Systems Inc. (FLIR), Herley Industries Inc. (HRLY) and L-3 Communications Holdings Inc. (LLL).

 

However, in the near term, we do not expect any upside since we feel all these positives have been factored in the current market price of the Raytheon stock. Thus, we maintain our neutral recommendation on the Zacks #3 Rank (hold) stock.