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Raytheon (RTX) Wins $397.7M Deal to Support ESSM Production

Raytheon Technologies Corp. RTX recently clinched a modification contract involving the Evolved Seasparrow (“ESSM”) Missile Block 2. The Naval Sea Systems Command, Washington, D.C. awarded the deal.

Details of the Deal

Valued at $397.7 million, this contract includes missile assemblies, shipping containers and spare parts in support of ESSM Block 2 full-rate production requirements. The work related to this deal will be carried out at multiple locations across the United States and is scheduled to be completed by March 2027.

What’s Favoring Raytheon?

Nations are strengthening their defense capabilities amid rising geopolitical tensions. The recent tiff between Ukraine and Russia has fueled the demand for military weaponry and arsenals as nations prepare themselves for any sudden assault. In such a scenario, missiles, which play an integral role in any defense structure, may witness a northward trend in demand.

Per the report from Mordor Intelligence, the missiles and missile defense system market is anticipated to witness a CAGR of 4.9% over the 2022-2027 period. This bodes well for Raytheon as the company enjoys an established position in manufacturing military missiles.

Apart from ESSM, Raytheon enjoys strong demand for a variety of combat-proven missile defense systems. These include the Patriot missile, Standard Missile-6, Standard Missile-3, Advanced Medium-Range Air-to-Air Missile, Tomahawk cruise missile and a few more.

Consequently, RTX’s backlog for its Missiles & Defense segment came in at $32 billion as of Sep 30, 2022, which signifies an increase from $29 billion as of Dec 31, 2021. Such a strong backlog tends to boost its revenue generation prospects from the Missiles and Defense business unit.

Peer Growth

Considering the aforementioned growth prospects, defense majors who have carved out a position in the military missile market and are poised to enjoy the perks of the expanding market are as follows:

Northrop Grumman NOC designs and produces missile products, including advanced high-speed propulsion systems, fuses, warheads and controls for air, sea and land-based systems.

Northrop Grumman has a long-term (three to five years) earnings growth rate of 2.9%. NOC’s investors have gained 50.5% in the past year.

Lockheed Martin’s LMT Missiles and Fire Control develops, manufactures and supports advanced combat, missile, rocket, manned and unmanned systems for military customers. These include the U.S. Army, Navy, Air Force, Marine Corps, NASA and dozens of foreign allies.

Lockheed Martin’s long-term earnings growth rate is pegged at 6.2%. Shares of LMT have returned 45.1% value to investors in the past year.

BAE Systems’ BAESY next-generation missile seeker technology serves a vital role in defense, offering protection from potential threats. It provides high-performance missile seeker technology for ballistic missile defense.

BAE Systems boasts a long-term earnings growth rate of 13.7%. BAESY stock has appreciated 32.2% in the past year.

Price Movement

In the past year, shares of Raytheon Technologies have rallied 19.8% compared with the industry’s growth of 11.1%.

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Zacks Investment Research

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Zacks Rank

Raytheon Technologies currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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