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Raytheon Wins Navy Deal to Support ESSM Block 2 Program

Zacks Equity Research
·4-min read

Raytheon Technologies Corp.’s RTX Missiles and Defense business segment recently secured a modification contractin relation to the Evolved Sea Sparrow Missiles (ESSM) Block 2. Valued at $32.2 million, this deal was awarded by the Naval Sea Systems Command, Washington, DC.

Per the terms of the agreement, Raytheon will accomplish engineering and manufacturing development, software development, testing and support to complete the government operational test and evaluation of the ESSM.Majority of the work related to the deal will get executed in Tucson, AZ.

Raytheon is expected to complete the task by August 2021.

Significance of ESSM Block 2 Missiles

Raytheon’s ESSM is an international cooperative upgrade of the RIM-7 Sea Sparrow Missile. It provides self-defense battle space and firepower against high-speed, highly maneuverable anti-ship missiles in the naval environment including aircraft, high and low velocity air threats.

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The program is a global joint initiative undertaken by the United States, the North Atlantic Treaty Organization (NATO) and other allied nations that include Australia, Canada, Denmark, Germany, Greece, Norway, Spain, Turkey and the Netherlands. Under this initiative, these countries plan to design, develop, examine and procure ESSM missiles. At present, ESSM has more than 2,000 proven rounds in service or in production, with another 1,500 rounds anticipated.

What’s Favoring Raytheon?

Increasing geopolitical tensions across the globe have prompted nations, both developed and developing, to strengthen their defense systems manifold. Following the rapid technological advancements, missile defense has steadily emerged as a key catalyst for a nation’s defense strategy.

With the United States being the world’s largest weapons supplier and Raytheon Technologies being a prominent U.S. missile maker, the company has been clinching significant awards for the enhancement of its missile defense systems with latest technologies and providing its end users with complex technical services. The latest acquired contact is one such example.

Considering the latest deal and a few other contracts secured by the company in recent times, we expect its Missiles and Defense segment to put up a solid top-line performance in the coming days.

Growth Prospects

The U.S. fiscal 2021 defense budget proposal provisioned $20.3 billion for major war-fighting investments in missile defense. This should enable Raytheon Technologies to clinch more contracts related to missile defense systems and associated services, considering the company’s proven expertise in varied missile systems.

Other major missile defense players like General Dynamics GD, Boeing BA and Lockheed Martin LMT are also expected to benefit from the aforementioned budget provision.

Price Movement

In the past month, Raytheon Technologies has lost 14.6% compared with the industry’s 17% decline.

Zacks Rank & Stock to Consider

Raytheon Technologies currently carries a Zacks Rank #5 (Strong Sell).

A better-ranked stock in the same sector is Lockheed Martin, which holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lockheed delivered average positive earnings surprise of 7.40% in the trailing four quarters. The company has a long-term earnings growth rate of 6.9%.

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The Boeing Company (BA) : Free Stock Analysis Report
 
General Dynamics Corporation (GD) : Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
Raytheon Technologies Corporation (RTX) : Free Stock Analysis Report
 
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Zacks Investment Research