Raytheon Wins $212.8M US Missile Contract For UAE; Street Is Bullish

Raytheon Technologies has been awarded a $212.8 million supply and maintenance services contract by the US Missile Defense Agency to the United Arab Emirates (UAE).

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As part of the Foreign Military Sale (FMS) contract, Raytheon Technologies (RTX) will provide 1 prime power unit, an air- and highway-transportable, trailer-mounted 1.3MW (megawatt) generator set, and 5 years of sustainment services for 2 Terminal High Altitude Area Defense Army/Navy Transportable radar surveillance and control-series 2 (AN/TPY-2) radars.

The work will be performed in Massachusetts, and some support services will be provided in-country. The contract is Oct. 1, 2020, through Sept. 30, 2025. UAE FMS funds in the amount of $212.8 will be used to pay for the contract.

The contract type will be a hybrid firm-fixed-price, cost-plus-incentive-fee, cost-plus-fixed-fee and cost-reimbursement contract.

Shares in Raytheon have plunged 35% so far this year as the aerospace and defense conglomerate has been suffering from the coronavirus-led crisis in the aviation industry. Earlier this month, the company announced plans to cut more than 15,000 jobs to lower general and administrative expenses by 20%. In addition, the company is also seeking to reduce the amount of office space globally by 20%-25% over the next 4 or 5 years. (See Raytheon stock analysis on TipRanks)

Cowen & Co analyst Cai Rumohr on Friday lowered the stock’s price target to $70 (2.7% dividend yield) from $80, while maintaining a Buy rating.

“RTX’s aftermarket recovery story is intact, and the stock has support from a peer-high 3.3% dividend yield,” Rumohr wrote in a note to investors. “But while probable, a multi-year recovery may take longer to pan out than consensus suggests.”

Meanwhile, Goldman Sachs analyst Noah Poponak earlier this month raised the stock’s price target to $86 (50% upside potential) from $84 and added RTX to his conviction list.

Poponak, who kept a Buy rating, believes that the recovery in global air travel could be “quicker from here than broad expectations for a recovery by 2023-2024”.

The analyst sees Raytheon’s defense business as well positioned in key end market categories. “The strong trailing book to bill supports visible revenue growth going forward”, he added.

The rest of the Street is in line with Poponak’s bullish outlook on the stock. The Strong Buy analyst consensus shows 7 Buys versus 2 Holds. The $78.63 average price target implies 37% upside potential in the coming 12 months.