Raytheon Wins $2.4B FMS Contract to Supply Patriot to Qatar - Analyst Blog

Raytheon Company (RTN) won a foreign military sales (“FMS”) contract worth $2.4 billion to supply 10 Patriot missile defense systems to Qatar. Raytheon had indicated in its third-quarter earnings call that it was expecting to close the Qatar deal by 2014-end.

Patriot is a long-range, high-altitude, all-weather system developed to counter threats from tactical ballistic missiles, cruise missiles and advanced fighter aircraft. This missile defense system was successfully used during the 1991 Gulf War and the Iraqi War.

Of late, Qatar has been reinforcing its defense in light of the growing threat from Iran. With Qatar involved in improving security, Raytheon stands to make huge gains. Raytheon is expected to complete the contracted work by Apr 30, 2019.

On Dec 9, 2014, negotiators from both the House and the Senate agreed on a $1.01 trillion spending bill to fund most of the government through the end of Sep 2015. This bill includes $490.2 billion for the Pentagon's base appropriation and $64 billion for Overseas Contingency Operations funding, bringing the total to $554.2 billion which is still lower than the $572 billion spending in fiscal 2014.

Thus, with defense majors looking to battle sequestration woes with minimum losses, FMS remains the key tool for boosting the company's top line. Raytheon is optimistic about its 2014 top-line generation with revenues expected between $22.7 billion and $23.0 billion. Earlier, it had expected total revenues in the $22.5 billion to $23.0 billion range. It sees higher demand for its products from the international community and expects international sales to rise in the mid-single digits, contributing 30% of projected 2014 sales, exceeding the 2013-level of 27%.

The ongoing Iraqi civil war, escalating tensions in Eastern Europe and demand for defense products in the Middle East and other Asian nations reinforce FMS contracts as a vital growth driver for defense companies.

Lockheed Martin Corp. (LMT) recently won an FMS contract worth $308.3 million to provide the Taiwan government with 144 Active Electronically Scanned Array radars. Northrop Grumman Corporation (NOC) also received an FMS contract worth $657.4 million to supply the RQ-4 Global Hawk drones to South Korea. Another defense major, General Dynamics Corp. (GD),has landed a contract worth $253.4 million (C$ 287 million) contract by the Canadian government to upgrade its Canadian LAV III vehicles, also known as LAV 6.0.

Thus, a steady flow of orders from foreign shores is expected to bring in the required financial respite for the U.S.defense sector as a whole.

Raytheon currently has a Zacks Rank #3 (Hold).
 

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