Stifel Sees Raytheon Company's International Sales Buffering Negative Impact From U.S. Government Defense Spending Cuts

Analysts at Stifel Nicholas issued a fresh note Tuesday morning and upgraded their rating on Raytheon Company RTN from Hold to Buy and announced a $115 price target.

The expected future benefit to the stock price is to come from Raytheon’s portfolio of products and international business.

When it comes to international sales, Raytheon generated roughly 27 percent of its 2013 sales from global customers and 2014 international bookings are expected to account for 35 percent to 40 percent of total booking, according to Stifel. As the Middle East continues to deteriorate under ISIS expansion, Stifel said, "demand for Raytheon’s missile defense capabilities is likely to remain strong," which ought to help drive the international business and expand operating margins, offsetting softer U.S. spending on defense. Raytheon also has “the least exposure to government ‘services’ work out of the defense primes [and] should also help Raytheon margins.”

Raytheon's diverse product portfolio will likely produce annual sales above $1 billion. The lack of significant exposure to "big ticket programs compared with its peers" is a positive differentiation, according Stifel.

Cash generation from core operations should remain solid as "the expected tailwind from recovering pension pre-funding is expected to add roughly $8 billion over the next 10 years and support continued growth" in the company’s dividend and share buyback plan.

In mid-morning trading on Tuesday, Raytheon shares are trading up over 1 percent to $102.03.