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Raytheon Wins Deal to Supply Spare Parts for APG-79 Radar System

Zacks Equity Research

Raytheon Company RTN recently secured a $45.1-million deal to deliver spare parts of the APG-79 Radar System. This three-year contract comes with no option periods.

Work related to the deal will get executed in California and is expected to be completed by Dec 30, 2022. The contract was awarded by the Defense Logistics Agency Aviation, Philadelphia, PA.

Importance of the APG-79 Radar System

The combat-proven APG-79 AESA radar system substantially increases the power of the U.S. Navy's F/A-18E/F Super Hornet and the F/A-18 Classic Hornet by providing active electronic beam scanning, allowing the radar beam to be steered at enormous speeds.

Further, its agile beam enables the multimode radar to interleave in near-real time, so that pilots and crew can use both modes, simultaneously. The radar system also optimizes situational awareness and provides superior air-to-air and air-to-surface capabilities.

What Favors Raytheon?

Per Markets and Markets Research firm, the electronically scanned arrays market is expected to see a CAGR of 6.20% to $8.43 billion by 2021, from 2016. Such growth can be attributed to factors like the replacement of traditional electronically scanned array systems and integration of active electronically scanned arrays with traditional radar system components.This, in turn, might bolster demand for its spare parts, components and technical servicesin this market.

Also, in recent times, Raytheon witnessed significant radar-related success from major investments, including those made in Gallium Nitride (GaN), which helps in amplifying radio energy for radars, jammers and other devices.

Meanwhile, Raytheon’s Space and Airborne System (SAS) business unit, which manufactures other combat-proven radars and sensors along with the AESA Radar system, significantly helps in driving the company’s overall top line. This is evident from the division’s third-quarter 2019revenues that accounted for 14% of the company’s total sales. In sync with this, we may expect the recently won contract to add further impetus to this unit’s top-line growth, going ahead.

Price Movement

In a year’s time, shares of Raytheon have gained 26.8% compared with the industry’s 33.7% growth.

Zacks Rank & Key Picks

Raytheon currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are Ducommun Incorporated DCO, CAE Inc. CAE and Teledyne Technologies Inc. TDY. While Ducommun sports a Zacks Rank #1 (Strong Buy), CAE Inc and Teledyne carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ducommun delivered a positive earnings surprise of 14.75% in the last four quarters. ItsZacks Consensus Estimate for 2019 earnings improved 6.3% over the past 90 days.

CAE Inc. delivered a positive earnings surprise of 10.53% in the last reported quarter. It has a solid long-term earnings growth rate of 10%.

Teledyne delivered an average four-quarter earnings beat of10.13%. It currently boasts a solid long-term earnings growth rate of 7.5%.

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