Raytheon Gets $298M Air Force Contract - Analyst Blog

Aerospace and defense major Raytheon Company RTN received a $298 million contract from the U.S. Air Force. Per the contract, Raytheon will be responsible for production of the Family of Advanced Beyond Line-of-Sight Terminal (FAB-T) Command Post Terminal CPT.  

Two bids were solicited and received.  Raytheon's hardware and software as well as its technical expertise to develop the FAB-T satellite terminal platform prevailed over The Boeing Co.'s BA work on this program.

The objective of the FAB-T program is to provide strategic nuclear and non-nuclear command and control with Extremely High Frequency ('EHF') to the nation's leaders. These terminals will be able to link up with the satellites and provide secured information to warfighters.

Raytheon will perform the work at its facilities in Marlborough, MA and Largo, FL. The official release from the U.S. Department of Defense reads "As a result of this down-select decision, low rate initial production, full rate production and interim contractor support contract options may be exercised to deliver FAB-T CPT-Only Terminals. The Phase 2 production contract options for LRIP, FRP, and ICS may be exercised after completion of Milestone C."  Hence, this contract has an option for further additions and can create avenues for Raytheon to generate incremental revenues.

A diverse product portfolio allows Raytheon to win domestic and international contracts at regular intervals. International contracts provide the company a breather from the ongoing possibility of U.S. defense budget cuts. The fiscal 2015 U.S. defense base budget provides $495.6 billion, a reduction of $0.4 billion from the FY 2014 enacted budget of $496.0 billion.  Raytheon expects its foreign military sales to touch 30% of total revenues in 2014, exceeding the 27% in 2013, thereby plugging the challenges of an austere budget.

Raytheon currently has a Zacks Rank #3 (Hold). Investors interested in the aerospace and defense industry may consider stocks like Arotech Corporation ARTX and Embraer SA ERJ. Arotech Corporation holds a Zacks Rank #2 (Buy) while Embraer sports a Zacks Rank #1 (Strong Buy).