Raytheon Scores $722M US Missile Defense Agency Contract

Raytheon (RTX) has been awarded a sole-source, indefinite-delivery/indefinite-quantity contract for a ceiling value of $722.4M from the US Missile Defense Agency.

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This contract is a hybrid of fixed-price incentive firm-target, firm-fixed-price, cost-plus-incentive fee and cost-plus-fixed-fee for fiscal years 2021-2029, the US Department of Defense reveals.

Under this contract, Raytheon will provide the management, material and services associated with the sustaining engineering and product support services of the Standard Missile-3 Block missile variants for the U.S. and Foreign Military Sales partners.

Work will be performed in Tucson, Arizona; and Huntsville, Alabama, with an ordering period of nine years from contract award through Oct. 29, 2029.

“Fiscal 2021 research, development, test, and evaluation funds in the amount of $6,695,129 will be obligated at time of award” the defense department states.

The Missile Defense Agency, Dahlgren, Virginia, is the contracting activity.

While Raytheon shares have stumbled in 2020, and are currently trading down 39% year-to-date, Goldman Sachs sees the weakness as a buying opportunity.

Analyst Noah Poponak believes RTX is “too high quality and well positioned of a company to trade at an 11% free cash flow yield on the fully aerospace-recovered and fully synergized 2023E free cash.” Specifically he calls the company’s aerospace aftermarket business “the best sub-market within Aerospace over the long-term.” This segment makes up roughly 45% of RTX’s aerospace revenue.

As a result, the Goldman analyst keeps a Buy rating and $86 price target on the stock (indicating 58% upside potential).

Overall, the Street mirrors this bullish sentiment. Seven Buys published in the last three months add up to a firm Strong Buy consensus rating. With an average price target of $77, the upside potential comes in at 41%. (See RTX stock analysis on TipRanks)