Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Raytheon Plays a New Patriot Card

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Raytheon's (NYSE: RTN  ) Patriot missile system blasted onto the world stage in 1991, when the missiles famously sheltered U.S. troops in Saudi Arabia, and Israeli civilians in Israel, from a furious swarm of Scud missile launches by Iraq's Saddam Hussein.

In fact, though, the Patriot's been in active deployment since as far back as 1984, and this poses a problem for Raytheon. With an expected shelf life of 30 years, many of the 10,000-plus Patriot missiles lining military armories around the globe are beginning to approach obsolescence.

On the plus side, this might give Raytheon an opportunity to sell its customers newer, better missiles to replace the aging Patriots they already own. The company's continually innovating the product, after all, and in partnership with Lockheed Martin (NYSE: LMT  ) , has racking up mongo sales of their new PAC-3 configuration of missile-and-launcher.

On the other hand, though, any time a customer is forced to think about replacing its hardware, a risk arises that it might choose to buy its replacements from... somebody other than Raytheon. Russia's S-300 and next-gen S-400 systems, for example, have proven very popular among Third World militaries. Israel's new Iron Dome technology, if it becomes available for sale, could also become a contender. So what's a defense contractor to do?

Offer upgrades.

On Monday, Raytheon announced that the U.S. Army has approved the Patriot for "recertification." What this means, in essence, is that for a small fee -- Raytheon says it will be a mere "fraction of the cost of replacing them with alternative interceptors" -- Raytheon can check the oil and rotate the tires on a customer's Patriot inventory, and if everything checks out, extend the missile's approved lifespan by 15 years, to 45 years in total. Alternatively, Raytheon can upgrade the missiles to their latest, most advanced GEM-T configuration (as the Army recently paid if $46.7 million to do).

So recertify or upgrade -- pick whichever alternative you like, says Raytheon. Just don't make the mistake of going with an "alternative interceptor" from some other company.

Foolish takeaway
Seems to me, this is good policy on Raytheon's part. Sure, selling entirely new missiles would generate greater sales for the company (which booked $24.4 billion in 2012). But the revenues from a recertified bird in the hand is worth two uncertain sales of birds in the bush. And the longer Raytheon can keep its customers loyal, and doubling down on their Raytheon-produced products, the less likely they'll ever choose to switch to an unfamiliar supplier years down the road.

Profiting from our increasingly global economy can be as easy as investing in your own backyard. The Motley Fool's free report "3 American Companies Set to Dominate the World" shows you how. Click here to get your free copy before it's gone.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2341558, ~/Articles/ArticleHandler.aspx, 9/29/2016 9:59:59 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,326.13 -13.11 -0.07%
S&P 500 2,168.52 -2.85 -0.13%
NASD 5,310.04 -8.51 -0.16%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2016 9:43 AM
RTN $138.73 Down -0.64 -0.46%
Raytheon CAPS Rating: ****
LMT $244.48 Down -1.27 -0.52%
Lockheed Martin CAPS Rating: ****