Raytheon (RTN) Wins $491.5M FMS Contract for AMRAAM - Analyst Blog

Raytheon Company (RTN) won a $491.5 million contract from the U.S. Air Force to continue the production of the Advanced Medium Range Air to Air Missile (“AMRAAM”). Per the contract, Raytheon will supply the AMRAAM missiles and other AMRAAM equipment.

The contract comprises of foreign military sales (“FMS”) to Korea, Oman, Singapore and Thailand. Work on the contract is expected to conclude by Feb 28, 2017.

AMRAAM is an all-weather, lightweight and cost-effective missile. Incorporated with the newest digital technology, it provides active radar guidance. It is also capable of attacking low-altitude targets and incorporates autonomous guidance. It is thus highly efficient and reliable. Till date, 36 countries have purchased AMRAAM, a testament to efficiency and operational flexibility.

Budget austerities remain an overhang on the defense sector with $554.2 billion allocated to the U.S. Department of Defense for fiscal 2015. This compares unfavorably with fiscal 2014 budget of $572 billion. Thus, the FMS contract is considered as the catalyst that would keep the defense companies' top line ticking.

Raytheon is also depending on FMS to boost its topline, with a projection of revenues in the range of $22.7–$23.0 billion in 2014. International sales represented 30% of total sales in the third quarter of 2014, up from 27% in the prior-year quarter. The company expects international sales to increase further with international bookings for 2014 expected in the range of 35%–40% of the total bookings.

Raytheon currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include The Boeing Company (BA), Engility Holdings, Inc. (EGL) and General Dynamics Corp. (GD), each holding a Zacks Rank #2 (Buy).