Raytheon Company Gains from Tensions
It’s not the first time that this I say this about Raytheon Company (NYSE:RTN), but Poland is one of the keys to understanding its future. For that reason, keep your eyes open for news focused on Poland, because it also holds one of the keys to predicting the course of Raytheon stock in the next few years.
Why Poland? It so happens that Poland has become one of the key members of the North Atlantic Treaty Organization (NATO). This is especially the case, given the continuing uncertainties regarding Turkey, which has occupied a leading role as one of the frontiers from which the United States and its allies challenged the Soviet Union first, and post-Soviet Russia later. Where your investments are concerned, this ongoing international security problem becomes a bullish signal for Raytheon stock.
Russia, which borders Poland, has developed some rather sophisticated missiles lately. Poland has asked the United States government for permission to buy up to eight “Patriot” missile systems for its defense. If the request is approved, and there are few chances it won’t be, Raytheon would rake in a reported $5.0 billion. (Source: “Poland seeks US approval to buy Patriot missiles in $5bn deal,” The Guardian, September 7, 2016.)
RTN stock might have been stagnating a little over the past few weeks. It has lost about a half percentage point over the last week. In fact, it is virtually unchanged from a month ago. But the potential for a nice rise exists, and the geopolitical tensions building up around Poland are a clue of a major move in the next few months for Raytheon shares.
Patriot Missile Is a Top Driver for RTN Stock
When the Patriot missile rumors first started circulating, the Polish government said it wanted to conclude the agreement with the U.S. government before the start of 2017 for the purchase of the Raytheon Patriot air and missile defense system. (Source: “Poland Intends To Finalize Patriot Sale Agreement by Year’s End,” Defense News, July 25, 2016.) But the Patriot missile announcement was just the first strategic program to emerge after a Polish government summit on defense.
There are also rumors that Raytheon will co-develop a related interceptor missile. It would stop incoming short- and medium-range ballistic and cruise missiles, presumably coming from Russia. The main target is Russia’s “SS-26,” also known as the “Iskander” short-range ballistic missile, based in Kaliningrad, located alongside the Polish-Russian border. (Source: “Will Raytheon’s SkyCeptor Save Poland from Russia’s Mighty Missiles?,” The National Interest, September 7, 2016.)
It’s more than just rockets at Raytheon. There’s the matter of cybersecurity.
There’s another reason why Raytheon stock should gain more traction from this deal. The Patriot deal wasn’t just a rubber-stamp decision, aimed at pleasing the Americans. Not at all. Warsaw actually confirmed its defense procurement decision only after seriously considering the European alternative system, the “SAMP/T”, also known as “Mamba”. Ultimately, the Poles deemed the Patriot to be the more efficient choice.
Clearly directed against Russian actions, the Polish Raytheon choice is also highly political. It plays on the resurging confrontation between Moscow and Washington. Should Hillary Clinton be elected to the White House come November, there’s no telling where that confrontation might lead.
While Raytheon has become a household name in the United States—and in many other countries as well, especially Israel—because of the Patriot, missiles are not the only product propelling RTN stock. There’s another long-term renewal program at the Pentagon in need of Raytheon’s attention. Right now, much of the security protecting the data from NASA to the Treasury or the Department of State is old and porous.
It’s no wonder, since hackers have managed to breach that security on multiple occasions. (Source: “Hacks of OPM databases compromised 22.1 million people, federal authorities say,” The Washington Post, July 9, 2016.) As it happens, Raytheon is in the front line for major contracts to modernize the U.S. government’s cybersecurity infrastructure.
Few companies can compete with Raytheon in this area. The U.S. government has already requested some $89 billion in the 2017 budget to get this done. (Source: “Raytheon: Top of the List in Cybersecurity,” Moneyshow, September 7, 2016.) RTN stock is poised for another surge. Raytheon has spent the better part of the last decade upgrading its cybersecurity capability, but few seemed to notice.
Raytheon is a world leader in the design of systems to secure data and protect computers. It has a special unit, “Forcepoint,” which works on nothing but cybersecurity. The same international pressure that has prompted Poland to seek new defense missile systems has raised the need for a cybersecurity overhaul in Washington. Raytheon has the tools to address both problems, and RTN stock should start to reflect this in a bullish way promptly.