Missile Defense System a Growth Catalyst for Raytheon Stock
Today’s stock represents one of those investing strategies that comes into the picture when the general mood turns pessimistic and gripped by fear. As investors look for growth stories, such a setting presents few good investing opportunities. The stocks that gain from war and turmoil have taken center stage again, with the potential to reward investors many times over.
Raytheon Company (NYSE:RTN) is a case in point. The company is a technology and innovation leader specializing in defense and other government markets throughout the world. It focuses on five major business segments—Integrated Defense Systems; Intelligence, Information and Services; Missile Systems; Space and Airborne Systems; and Forcepoint—as it serves as a prime contractor or subcontractor on a broad portfolio of defense and related programs for government customers. The increasing global demand has been pushing RTN stock higher.
But most importantly, Raytheon is a leader in integrated air and missile defense, and delivers combat-proven results against the complete spectrum of threats from airborne and ballistic missiles. The company offers such solutions to the U.S. Department of Defense and the U.S. Intelligence community, as well as more than 50 international customers.
RTN stock is back in the limelight as the tensions in the Korean peninsula refuse to dissolve. Moreover, President Trump’s tweets are not helping to soothe the nerves. Consider what he tweeted on August 11:
As the world looks on with anxiety and uncertainty surrounding the nuclear threats, the only sure outcome from this situation is that defense expenses are bound to go up.
Raytheon stock is likely to do better as missile defense sales are expected to increase, given the heightened provocation by North Korea. Missile defense systems have assumed increased significance in the light of recent geopolitical tensions as such a system shields a country against incoming missiles such as intercontinental ballistic missile (ICBMs) or other ballistic missiles.
As per a news release by the U.S. Department of Defense, the department is advancing the capability to stay ahead of the ballistic missile attack threat into the future. Thomas Harvey, acting assistant secretary of defense for strategy, plans and capabilities, said that the department continues its efforts to modernize homeland missile defense capabilities so the nation stays ahead of the threat. (Source: “Officials: U.S. Missile Defense System Outpaces Threat,” U.S. Department of Defense, June 8, 2017.)
And this bodes well for Raytheon stock.
Last year, the company set a new record with bookings of $27.8 billion in 2016, up more than 10% year over year. The domestic sales grew for the first time in seven years and it was the 13th consecutive year of international sales growth.
In the recent quarter, revenue increased by 4.2% and was driven by demand from across the global customer base. The company has also gained significant contracts in the year to date and the management is very optimistic about the coming years. It is clear that one of the important areas of focus is Integrated Air and Missile Defense and Ballistic Missile Defense, which are strong areas for Raytheon.
Raytheon stock has been gaining strength gradually and has gained about 25% in the year to date and around 215% over the last five years, as shown in the chart below.
Chart courtesy of StockCharts.com
With the rise in geopolitical tensions, defense expenditure is bound to go nowhere but up. Although the defense stocks have come back in favor now, the strong position of RTN stock makes it a good long-term defense play. Raytheon shall continue to benefit from the rise in missile defense spending. As the stock is hovering near its highs at the moment, investors could consider buying it on dips.