Raytheon Seals $115.5M Naval Deal - Analyst Blog

Defense major Raytheon Co. RTN got the U.S. naval contract for MK15 Phalanx Close-In Weapon System (CIWS). This is a modification contract worth $115.5 million.

The contract calls for Raytheon to provide CIWS upgrades and conversions, system overhauls and associated hardware. The company expects to complete the task by Sep 2017. The Naval Sea Systems Command, Washington, District of Columbia, is the contracting activity.

The Phalanx Close-In Weapon System (CIWS) – a vital part of the Fleet Defense In-Depth concept and the Ship Self-Defense Program – is an automatic "terminal defense" weapon system to detect, track, engage, and destroy anti-ship missiles that have already infiltrated outer defense envelopes.

Given the declining U.S. defense spending trend, Raytheon is one of the best-positioned companies among the large-cap defense players due to its non-platform-centric focus. Its diversified military products and GaN technology have helped the company gain a mixture a small and big defense contracts.

Through the constant upgrade of ship self-defense systems to meet the evolving nature of threats and advances in computer technology, the company has successfully met its customers' requirements.

Earlier this year, Raytheon won a contract modification from the U.S. Department of Defense (DoD) for engineering and technical support work on the Navy's Phalanx, SeaRAM, and Land-based Phalanx Weapon Systems. The contract, worth $52.1 million, is essentially for maintenance, reliability, and improvements and will run through Jan 2015. Though the contract is not much to speak of, such small-ticket contracts still offer some respite from severe budget austerities.

Although the U.S. Department of Defense (DoD) dependency has aided top-line growth in the past, there is no assurance that the company will continue receiving high-value contracts at regular intervals taking into account the current budget uncertainty.

In fact, the Massachusetts-based defense contractor – Raytheon – currently holds a Zacks Rank #3 (Hold). However, stocks worth considering in the defense sector include Arotech Corporation ARTX, Huntington Ingalls Industries, Inc. HII and The Boeing Co. BA. These stocks presently carry a Zacks Rank #2 (Buy).