As Domestic Government Budgets Inflect Higher, Raytheon Shares Poised To Ramp Up

The brokerage listed the key programs such as AMDR, SM-3, THAAD, Patriot and Next Generation Jammer apart from several others to drive the company's performance higher on a year-over-year basis.

"RTN is a pure play on defense and highly leveraged to key areas such as missile defense and precision weaponry with several key programs well supported by domestic and international budgets that are inflecting higher for the first time in seven years," the analysts said in a research note to clients. "We expect continued strong operational performance as RTN returns to growth and benefits from some major international programs just beginning to ramp."

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The brokerage pointed out that Raytheon's current backlog of 42 percent comes from the global customers with Patriot, THAAD and Radars as the biggest bookings driver. The company also enjoys a bigger defense contract from 80 countries compared to its rivals suggesting the potentials for high-margin mix from the segment.

Baird sees the company generating EPS of $7.75, $9.05, $10.35 and $11.20 respectively for years 2017 to 2020. The estimation is based on the expectation of continued robust results driven by Missile Systems.

As a result, the brokerage initiated the stock with an Outperform rating and a target price of $170 implying more than 20 percent upside potentials from the current levels.

At time of writing, the stock traded at $137.89, up $0.76, or 0.55 percent.

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