Raytheon Company: Triple-Digit Upside for RTN Stock?

RTN StockRTN Stock Up Soaring on Solid Earnings

Since the start of 2016, investors have had to stomach a roller coaster ride on the S&P 500. And what do they have to show for it? A flat market. Yes, the S&P 500 may be up six percent year-to-date and just 1.5% away from record levels, but the long-in-the-tooth bull market is still clinging to its glorious past. A new S&P 500 record may be in sight, but there’s nothing to send it higher. Where can investors turn when markets are flat?

How about an excellent stock with a long history of providing investors with capital appreciation and raising its annual dividend? Raytheon Company (NYSE:RTN) is a global industry juggernaut with a strong balance sheet, aggressive stock repurchase program, tremendous momentum, and a great long-term outlook.

Raytheon stock reported solid first-quarter results with revenue climbing 3.2% and earnings per share up 44% at $2.38. During the second quarter, the company continued to generate cash, with cash flow from continuing operations advancing 98% year-over-year to $746.0 million.

During the first quarter, Raytheon repurchased 1.6 million shares of common stock for $202.0 million. Year-to-date 2016, the company repurchased 4.8 million shares of common stock for $602.0 million. Back in the first quarter, Raytheon’s board of directors voted to increase the company’s annual dividend rate by 9.3% from $2.68 to $2.93 per share. This represents the 12th consecutive annual dividend increase.

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More broadly, since 2005, RTN stock’s dividend has grown at a compound annual growth rate (CAGR) of 11.8%. Over the same time frame, the number of outstanding shares has decreased at a CAGR of -3.9%.

Since the beginning of 2016, Raytheon’s share price has climbed roughly 15% versus the six percent gain on the S&P 500. Over the last 12 months, Raytheon’s share price has gained.

About Raytheon Company

Raytheon is a technology and innovation company that specializing in defense, civil government, and cybersecurity solutions throughout the world. It operates in five segments: “Integrated Defense Systems” (IDS); “Intelligence, Information, and Services” (IIS); “Missile Systems” (MS); “Space and Airborne Systems” (SAS), and “Forcepoint.” (Source: “Company Overview,” Raytheon  Company, last accessed September 21, 2016.)

The IDS segment specializes in air and missile defense; land- and sea-based radars; and systems for managing command, control, communications, computers, cyber, intelligence, surveillance, and reconnaissance. It also produces naval air traffic management systems, sonars, torpedoes, and electronic systems.

IIS provides cybersecurity products and services, including intelligence, surveillance and reconnaissance, navigation, cybersecurity, analytics, training, mission support, and air traffic management systems.

The MS segment is the world’s leading missile maker, providing offensive and preemptive weapons for air, land, sea, and space. It is also on the cutting edge of electronic warfare developing jammers, decoys, tactical lasers, and other electric systems.

The SAS segment builds electro-optical/infrared sensors and radars for aircraft, spacecraft, and ships. It also provides communications and electronic warfare solutions and performs research in areas ranging from linguistics to quantum computing.

Forcepoint addresses cybersecurity challenges and regulatory requirements for businesses and government agencies, whether in the cloud, on the road, or in the office.

What Raytheon does not do, is manufacture or sell cluster munitions, land mines, or nuclear warheads.

Raytheon Company’s clients include the U.S. Department of Defense (DoD), the U.S. Intelligence Community, the U.S. Armed Forces, the Federal Aviation Administration (FAA), the National Oceanic and Atmospheric Administration (NOAA), Department of Homeland Security, the National Aeronautics and Space Administration (NASA), and other international customers.

Raytheon stock provides an annual dividend of 2.13%, or $2.93 per share ($0.7325 quarterly), which it has raised for the last 12 consecutive years. (Source: “Dividends,” Raytheon Company, last accessed September 21, 2016.)

In 2016, Raytheon raised its annual dividend by 9.3%. Between 2011 and 2015, Raytheon has paid out $3.54 billion in dividends and $4.9 billion on buying back shares.

Strong Second-Quarter Results

On July 28, Raytheon announced that second-quarter net revenue increased three percent year-over-year to $6.0 billion. Second-quarter earnings from continuing operations were up 44% at $2.38, from $1.56 in the same prior-year period. (Source: “Raytheon Reports Strong Second Quarter 2016 Results,” Raytheon Company, July 28, 2016.)

Second-quarter 2016 earnings per share (EPS) from continuing operations included a tax-free gain of $0.53 related to the ThalesRaytheonSystems (TRS) transaction. Second-quarter 2015 EPS from continuing operations included a $0.29 favorable impact from a tax settlement. Operating cash flow from continuing operations for the second quarter of 2016 was $746.0 million, compared to $376.0 million for the second quarter of 2015.

“The company had strong second quarter operating results, with bookings, sales, operating margin, earnings per share, and cash flow all ahead of our expectations,” said Thomas A. Kennedy, Raytheon’s chair and CEO. “We begin the second half of 2016 with continued confidence in our growth outlook, and we have increased our guidance for earnings and cash flow as a result of our strong year-to-date performance.”

In the second quarter of 2016, Raytheon repurchased 1.6 million shares of common stock for $202.0 million. Year-to-date 2016, the company has repurchased 4.8 million shares of common stock for $602.0 million.

As previously announced on June 29, 2016, Raytheon and Thales concluded their transaction to transition the stakeholder positions each company held in the TRS joint-venture structure, with Raytheon acquiring 100% of the TRS U.S. operations and Thales acquiring 100% of the French operations. As a result of the transaction, Raytheon made a net cash payment to Thales of $90.0 million and recorded a tax-free gain of $158.0 million, or $0.53 per diluted share in its second-quarter financial results.

Going forward, Raytheon maintained its 2016 revenue expectation of $24.0 billion to $24.5 billion. And it increased its earnings projection to the range of $7.13-$7.33 per share from the $6.93−$7.13 per share expected earlier for 2016.

Keep an Eye on Raytheon Stock

Raytheon stock is an excellent large-cap defensive play with a strong balance sheet, aggressive stock repurchase program, tremendous momentum, and a great long-term outlook. The company reported solid first- and second-quarter results and increased its EPS guidance.

During the second quarter, Raytheon repurchased 1.6 million shares of common stock for $202.0 million. Year-to-date 2016, the company has repurchased 4.8 million shares of common stock for $602.0 million.

In the first quarter, the company’s board of directors voted to increase the company’s annual dividend rate by 9.3%, from $2.68 to $2.93 per share. This represents the 12th consecutive annual dividend increase.

More broadly, since 2005, the company’s dividend has grown at a CAGR of 11.8%. Over the same time frame, the number of outstanding shares has decreased at a CAGR of -3.9%.

Subsequent to the end of the second quarter, Raytheon continues to announce new contracts and launch new products. Most recently, the company announced twin contracts from the U.S. Navy worth $161.0 million.