Raytheon's (RTX) Unit Wins $45M Contract to Develop SM-2

Raytheon Technologies Corp.’s RTX business segment, Missiles and Defense, recently secured a modification contract worth $45 million involving the low-rate initial production of Standard Missile-2 (SM-2) Block IIIC. The deal has been awarded by the Naval Sea Systems Command, Washington, DC.

Details of the Deal

Per the deal terms, Raytheon will also offer associated spares for the SM-2 Block IIIC missiles. Majority of the work related to the deal will be performed in Tucson, AZ. The contract is expected to be completed by September 2024.

Raytheon’s Missile Strength

Raytheon Missiles & Defense (RMD) is a leading designer, developer, integrator producer and sustainer of integrated air and missile defense systems, with the unit serving as a prime contractor or major subcontractor on numerous missile and related programs with the U.S. Department of Defense.

The SM-2 missile chases threats closer to the water's surface, defending against anti-ship missiles and aircraft out to 90 nautical miles. RMD has restarted its SM-2 production line after multiple countries pooled resources to make a "bundle" purchase.  In 2020, Canada was the latest country to add Standard Missile-2 Block IIIC in its surface combatant ships, through a $500 million purchase deal.

The aforementioned developments reflect the solid demand that Raytheon’s SM-2 missile enjoys worldwide, with more than 2,700 successful live firings so far. Considering this, we expect the company to witness more inflow of contracts, involving production and associated upgrade of these missiles.

Growth Prospects

Per Mordor Intelligence, the missiles and missile defense systems market is estimated to register a CAGR of more than 10% between 2020 and 2025. The growing conflicts between various countries and the increasing number of investments in missile defense systems being made by nations are expected to drive the market, thereby creating solid growth opportunities for Raytheon.

Other major missile makers like Northrop NOC, Boeing BA and Lockheed Martin LMT are also expected to benefit from the market growth.

Price Performance and Zacks Rank

In the past six months, shares of Raytheon, a Zacks Rank #3 (Hold) company, have gained 22.5%, outperforming the industry’s 13.7% growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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