Raytheon Gets $350M Contract to Upgrade Air Traffic Control - Analyst Blog

Raytheon Company (RTN) has received a Federal Aviation Administration (“FAA”) contract modification worth $350 million to carry on with the upgrade of 135 air traffic control centers to the Standard Terminal Automation System (“STARS”). The modernization is part of FAA's Terminal Automation Modernization and Replacement program, to continue through Sep 2017.

With the deployment of STARS at these airports, the largest U.S. airports and the majority of all Terminal air space monitored by FAA will transform to the NextGen terminal automation platform.

Notably, STARS is a standard air traffic control system used by the FAA and the Department of Defense (“DoD”) to effectively manage terminal area airspace. This system has the ability to track up to 1,350 airborne aircraft at the same time. It thus provides enhanced safety and capacity management features.

In fact, STARS is being operated at 150 FAA and various other DoD terminal air traffic control facilities, which speaks volumes about its exceptional performance.

Raytheon spent $356 million on research and development during the first nine months of 2014, up 2.9% from the prior-year period. The regular investment in research work helps the company to develop high quality products.

Raytheon's focus on technological innovation ensures contract wins at regular intervals. In Oct 2014, Raytheon clinched an order to build a next-generation long-range radar system for the U.S. Air Force, beating out rival bids from Lockheed Martin Corp. (LMT) and Northrop Grumman Corp. (NOC). The radar system, known as Three-Dimensional Expeditionary Long-Range Radar (“3DELRR”), is groundbased and tracks cruise missiles and drones. This was a major win for Raytheon in the radar market. The $19.5 million deal will run through Oct 31, 2018 and will cover continued development of the 3DELRR program, and construction of three initial systems.

Given the declining trend in U.S. defense spending, Raytheon is one of the best-positioned companies among the large-cap defense players like Lockheed Martin, Northrop and General Dynamics Corp. (GD) owing to its non-platform-centric focus. To counter the sequestration effect, the company has been heavily investing in technological upgrades.

The company strengthened its non-platform centric operation by acquiring a surveillance and cybersecurity company named Blackbird Technologies. This acquisition will boost the company's intelligence business and open opportunities for exploring the commercial prospects of cyber. Cyber-oriented work is expected to yield solid growth in the coming years.

On its third-quarter earnings call, Raytheon revised its 2014 earning projections upward in the range of $5.91–$6.01 per share, from $5.76–$5.91. With continued focus on technoloical upgrades, innovation and enhanced product offering, Raytheon will likely witness a constant flow of orders which will drive earnings growth.

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

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