Zacks_Analysts' Blog : Raytheon Wins $122.5M SM-3 Order - Analyst Blog

Raytheon Company (RTN) has received a $122.5 million order for the development of Standard Missile-3 (“SM-3”) Block IA and IB programs from the U.S. Missile Defense Agency.

Per the contract, the company will be responsible for design and engineering, and in-service engineering support of the variants of SM-3. It will also look after the production engineering, supervision and flight test support of these two variants of the SM-3 family.

The Standard Missile-3 is a ship-based missile system used by the US Navy to intercept short- to intermediate-range ballistic missiles as a part of Aegis Ballistic Missile Defense System. SM-3 Block IA, the first variant in the SM-3 family, is used in support of the first phase of the administration's Phased Adaptive Approach (“PAA”) for ballistic missile defense. Till date, the company has delivered 130 IA’s under budget and ahead of schedule.

The SM-3 Block IB, the second variant of the SM-3 family, is an enhanced kinetic warhead seeker with excellent divert and control system and a highly developed signal processing system. It is the keystone of phase two of the administration's PAA. The company targets to employ SM-3 Block IB at sea and ashore by 2015.

Raytheon is one of the best-positioned companies among the large-cap defense players because of its non-platform-centric focus. Looking forward, the company enjoys strong order bookings and order backlog, an improving balance sheet, and growing cash flow, besides operational improvements. Future growth will be driven by its focus on ISR unmanned systems, training, cyber security, Standard Missile-6, Patriot, Zumwalt and THAAD.

This is, however, offset by apprehensions over future growth of the U.S. defense budget, the fate of high-cost programs, risks related to key project executions and order cancellations. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

The company is expected to release its fourth quarter and fiscal year results on January 23, 2012. The Zacks Consensus Estimates for fourth quarter 2011 and fiscal year 2011 are currently at $1.35 per share and $5.05 per share, respectively.

Based in Massachusetts, Raytheon Company is one of the largest aerospace and defense companies in the U.S., with a 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. Some of its main competitors include The Boeing Company (BA) and Lockheed Martin Corporation (LMT).