(RTN) Raytheon in Patriot Upgrade Deal

Raytheon Company (RTN) has received a $51.3 million contract from the U.S. Army Aviation and Missile Command (“AMCOM”) to upgrade and configure the Patriot Advanced Capability-2 missiles into the Guidance Enhanced Missile-Tactical (GEM-T) pattern.

Patriot is a long-range, all-altitude, all-weather air defense system that protects against a full range of advanced threats, including aircraft, tactical ballistic missiles, cruise missiles and unmanned aerial vehicles. The work on the Patriot Advanced Capability-2 missiles includes replacement of some components that will increase reliability and extend the service life of the missile.

Raytheon is the prime contractor for both domestic and international Patriot Air and Missile Defense Systems and system integrator for Patriot Advanced Capability-3 missiles. The company is continuously making GEM-T upgrades under existing contracts with the U.S. and other Patriot partner nations at its Integrated Air Defense Center in Andover, Massachusetts. Moreover, the defense major believes that in the current budgetary environment, it is able to present a cost-effective upgrade option for the most advanced combat-proven system in the world for its Patriot partner nations.

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).

We expect Raytheon’s future growth to be driven by its focus on intelligence, surveillance and reconnaissance unmanned systems, training, cyber security, Standard Missile-6, Patriot, Zumwalt and Theatre High Altitude Area Defense.

The possible growth areas are, however, clouded 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. Thus, the company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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