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For Raytheon Today, It's 2 Steps Forward, 1 Step Back

In an unusual "two steps forward, one step back" announcement Tuesday, the U.S. Department of Defense awarded Raytheon (NYSE: RTN  ) one new contract, increased the value of another contract slightly -- and then cut it by even more.

The more straightforward of the new news items here involves a basic ordering agreement to repair multi-spectral targeting system forward looking infrared turrets aboard Navy Sikorsky H-60 helicopters. The Pentagon awarded Raytheon $9.6 million to perform such work under a pre-existing contract, to be completed by next May.

The situation with Raytheon Missile Systems' contract to Standard Missile-3 Block IB missiles for the Missile Defense Agency is more complicated. On one hand, the Pentagon is increasing the value of Raytheon's contract by $24 million to fund increased costs incurred in resolving "technical and production transition issues" with the missiles. On the other hand, the Pentagon is reducing the number of missiles it is ordering from 24 to 20 -- cutting $48.9 million off the value of the contract in the process.

Net result: This contract is now worth $24.9 million less to Raytheon than it used to be.

The good news here for Raytheon, though, is that firstly, the total value of the underlying SM-3 IB contract still surpasses $1.9 billion. And secondly, the Pentagon noted in its announcement that it is retaining the option to change its mind, come back at a later date, and buy from Raytheon the four SM-3 IB missiles that it cut from its order today anyway.

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9/28/2016 4:02 PM
RTN $139.37 Up +0.26 +0.19%
Raytheon CAPS Rating: ****