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Raytheon Wins $150M FMS Deal to Aid Qatar’s Patriot System


Raytheon Company RTN recently secured a foreign military sales (FMS) contract for providing technical expertise and assistance to the Qatar government. Work related to this contract is scheduled to be over by Nov 30, 2022.

Valued at $150.2 million, the contract has been awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL. Per the terms of the deal, Raytheon will offer training, planning, fielding, deployment, operation, maintenance management, configuration management, logistics support, installation and sustainment of the Qatar Patriot Air Defense Systems and associated equipment.

Fiscal 2018 foreign military sales funds will be utilized to carry out the task at Doha, Qatar.

Patriot Air Defense System

Patriot is a long-range, high-altitude; all-weather missile defense system. It consists of radars, command-and-control technology and multiple types of interceptors. The system helps to detect, identify and defeat tactical ballistic missiles, cruise missiles, drones, advanced aircraft and other threats.

Raytheon — the manufacturer of the popular Patriot missile defense interceptors — has consistently remained focused on upgrading this defense system to keep pace with the changing dynamics of modern warfare. This must have enabled, Patriot to become the foundation of integrated air and missile defense for 13 nations.

What’s Favoring Raytheon?

Raytheon’s Patriot missile-defense systems have seen a number of buyers in recent times including international customers like Qatar, Korea and Poland. In September 2016, Poland signed a letter of request with the United States for an integrated air and missile defense system based on Patriot. Per earlier expectation, the country signed a FMS agreement worth $10.5 billion with the U.S. government, last month (according to Reuters). With the addition of Poland, Raytheon sees emerging opportunities in the European region. In this line, Raytheon’s management expects that the company has an opportunity to expand its market in Poland that boasts a total value of nearly $5 billion.

Apart from Poland, Raytheon believes that Patriot will be in demand in other countries like Romania. The company hopes to clinch an agreement pertaining to the same worth $2 billion. These opportunities, along with demand for additional fire units and upgrades for existing customers in other regions, continue to demonstrate the strength of Raytheon’s Patriot franchise.

With increasing geo-political tensions across the globe, apart from the United States and its allies, other nations across the globe are also utilizing advanced technology to strengthen their defense systems. Raytheon’s Patriot missile defense system has showed its success during the 1991 Gulf War and Iraqi War. This must have boosted the demand for this particular missile system worldwide.

The company believes that growing interest in including a 360-degree active electronically scanned array radar to the Patriot Air Defense systems will lead to further sales growth for the company.

Currently, the rocket and missile market is projected to grow from $55.5 billion in 2017 to $70 billion by 2022, at a CAGR of 4.74% during the forecast period (as per Markets and Markets research firm). Given this huge opportunity for expansion, frequent contract wins from Pentagon for its high-end missiles like Patriot, including the latest one, will allow Raytheon to further enhance its market share in the aerospace and defense industry.

Price Performance

Raytheon’s stock has returned 25.3% over a year, underperforming the 29.9% rally of the industry it belongs to. This might have been caused by the earlier budget cuts implemented by the U.S. government.

Zacks Rank & Stocks to Consider

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

A few better-ranked stocks in the same space are Curtiss-Wright Corporation CW, Orbital ATK, Inc. OA, and Rockwell Collins, Inc. COL. While Curtiss-Wright Corporation sports a Zacks Rank #1 (Strong Buy), Orbital ATK and Rockwell Collins carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Curtiss-Wright Corporation posted an average positive earnings surprise of 11.78% in the past four quarters. Its current year Zacks Consensus Estimate has improved by 22 cents over the last 60 days.

Orbital ATK posted a positive earnings surprise of 12.18% in the last quarter. Its current year Zacks Consensus Estimate has improved by 3 cents in the last 60 days.

Rockwell Collins posted an average positive earnings surprise of 2.61% in the past four quarters. Its current year Zacks Consensus Estimate has improved by 2 cents over the last 60 days.

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