(RTN) Raytheon Gets U.S. Air Force Contract

Raytheon Company (RTN) has entered into an agreement, worth $8.7 million, with the U.S. Air Force for contributing its technical expertise to develop the future protected tactical military satellite communication system. The company’s Network Centric Systems (“NCS”) segment will take responsibility for this project.

Per the contract, Raytheon will design and display affordable terminal constituents, and support for waveform advancement under the Air Force’s Advanced Extremely High Frequency (“AEHF”) systems.

The AEHF satellites offer the U.S. armed forces with larger bandwidth to transfer battlefield data in a reliable manner. The AEHF terminals instantly link the U.S. president with his most senior military advisers across the world.

Currently, the U.S. armed forces intend to recognize the cost-effective architectures and module development paths for its future satellite communication (“SATCOM”) systems. Moreover, The Boeing Company (BA), L-3 Communications Holdings Inc. (LLL) and other defense industry majors actively contribute their domain skills for this project.

During third-quarter 2012 earnings call, Raytheon’s NCS segment reported a total backlog of approximately $4 billion compared with $4.5 billion in the year-ago quarter. Despite a dip in backlog, this segment continues to receive national as well as international contracts. In the last few days, the company received an order from the Kingdom of Saudi Arabia to provide a Command, Control, Communications, Computers and Intelligence (“C4I”) system and another contract, worth $51 million, from the U.S. Army to manufacture more airborne radios and continue to upgrade future radios.

We view Raytheon as one of the best-positioned companies among the large defense players due to its non-platform-centric focus, as well as its strong order bookings of $18.6 billion and order backlog of approximately $35 billion at the end of the first nine months of 2012. Future growth will be driven by its focus on ISR unmanned systems, training, cyber security, Standard Missile-6, Patriot, Zumwalt and THAAD.

However, these positives may to some extent mitigate by factors like fate of high-cost programs related to apprehensions over rise in future U.S. defense budget cut backs, and risks associated with delay in key project executions and order cancellations.

Waltham, Massachusetts-based Raytheon Company is a technology and innovation leader specializing in defense, homeland security and other government markets throughout the world. With a market capitalization of $18.75 billion, the company has 71,000 full-time employees. Raytheon currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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