Details of the Contract
The contract is valued at $82.8 million. It was awarded by the Naval Air Systems Command, Patuxent River, MD.
Per the modification, Raytheon will procure Block II missiles – 52 for the Air Force; eight for the Navy; 93 for the governments of Poland; 14 for Indonesia; 10 for Romania; three for Belgium. Apart from this, the company will also provide 19 captive air training Missiles – 11 for the Air Force; eight for the Navy; 50 AIM-9X missile containers – 14 for the Air Force; one for the Navy and Marine Corps each; and 26 for the governments of Poland; four for Indonesia; three for Romania; and one for Belgium.
Additionally, the company will provide three special air training missiles for the Marine Corps’ Harrier program; two spare active optical target detectors for the Air Force; two spare tactical guidance units (live battery) for the Air Force; two spare captive air training missile guidance units (inert battery) for the Air Force; seven spare active optical target detector containers – 6 for the Air Force; one for the Navy; four guidance unit containers – two for the Air Force and the Navy each; and associated lots of spares for the Navy, Air Force and government of Poland.
In fact, the deal covers purchasing 30.59% for the Air Force; 6.08% for the Navy; 49.08% for the governments of Poland; 7.39% for Indonesia; 5.28% for Romania; 1.58% for Belgium, under the Foreign Military Sales (FMS) program.
Work is scheduled to be complete by Mar 2020. Majority of the work will be carried out in Tucson, AZ, while the rest will be executed in various locations across the U.S., Canada, Germany and Italy. The contract will use fiscal 2017 weapons procurement (Navy); 2017 research, development, testing and evaluation (Navy); 2015, 2016, and 2017 missile procurement (Air Force); and foreign military sales funds.
A Brief Note on AIM-9X Block II
The AIM-9X Block II missile is an advanced version of Raytheon’s AIM-9X Block I Sidewinder infrared-guided, air-to-air missile that features a lock-on-after-launch capability, redesigned fuse and a one-way forward-quarter datalink capability. Unlike the AIM-9, the AIM-9X can even be used against targets on the ground.
The Block II missile is armed with improved handling, loading, in-flight safety and enhanced ability to destroy a target. It has been equipped with new processors in the guidance section and a new fuse that has a weapon datalink, providing it with a lock-on-after-launch capability. The missile’s capabilities can be enhanced with future software updates, which will leverage the speed and increased memory capacity of new processors.
Potential for Growth
Following in the footsteps of the U.S. and its allies, other countries are working on utilizing advanced technology in their defense systems. Thus, foreign military contracts are a vital growth driver for Raytheon. Evidently, the company’s first-quarter international bookings comprised 33% of its total bookings. During the quarter, international sales were up 7.5%, representing 32% of total sales.
Raytheon is one of the best-positioned companies among large-cap defense players due to its non-platform-centric focus. It has been manufacturing AIM-9X missiles for 14 years. Block I missiles have been delivered to nine U.S. allies, while the Block II is being used by over 40 nations.
Moreover, the company has been enjoying a steady stream of contracts from government establishments. In April, Raytheon won a modification contract from the U.S. Navy to procure 317 of the 17th Lot of AIM-9X Block II missiles. The contract was valued at $199.8 million.
Again, in February, Raytheon secured a FMS contract, worth $1.07 billion, from the U.S. Air Force. Under the terms of the deal, the company will provide an early warning radar system to the Qatar government. Also, the company won a FMS contract valued at $202.2 million from the U.S. Army to provide engineering services for the PATRIOT weapon systems program in the same month.
Raytheon’s stock was up about 14.4% on a year-to-date basis, outperforming the Zacks categorized Aerospace-Defense Equipment industry’s gain of 10.2%. This could be because of rising demand from MENA or the Middle East and North Africa region, and growth in FMS contracts. Additionally, the company poses strong competition to peers including Ducommun Incorporated (DCO – Free Report) , Triump Group, Inc. (TGI – Free Report) and Aerojet Rocketdyne Holdings, Inc. (AJRD – Free Report) .
Raytheon currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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