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Raytheon Rocks the Rocket Market

This year is turning out to be a big one for American arms exports -- and for Raytheon (NYSE: RTN  ) .

You couldn't tell it from the stock price, which has shrunk 2% over the past 30 days. But the past month has actually been pretty good for Raytheon's arms sales. Just running down a quick tally of recent contracts the Pentagon has reported publicly...

Raytheon's TOW missile. Photo: Wikimedia Commons.

On June 19, the U.S. Army upped its order for Raytheon-built TOW anti-tank missiles by $391.5 million. In addition to the Army, some of these missiles will be going to the U.S. Marine Corps, and also to the militaries of Oman and Saudi Arabia.

Five days later, Raytheon won a contract to supply U.S. and allied navies with $73.4 million worth of Rolling Aiframe anti-ship missiles.

And a day later, another big win for Raytheon, as it bagged three separate contracts, totaling $265.4 million in combined value, to perform support work on Seasparrow anti-ship missiles and supply 515 AIM-9X Sidewinder air-to-air missiles and an assortment of CATM training missiles and associated equipment to the U.S. Navy and Air Force, and the militaries of allied nations Belgium, Kuwait, Morocco, Singapore, The Netherlands, and Turkey.

Loading a Sidewinder onto an F/A-18 Hornet. Photo: Wikimedia Commons.

Fast-forward two days, and Raytheon won a series of contracts:

  • $275.4 million to supply Standard Missile 6 surface-to-air missiles to the U.S. Navy.
  • $80.8 million to supply the U.S. Air Force with Miniature Air Launched Decoy Jammer missiles -- disposable "drones" capable of both duplicating the radar signature of U.S. aircraft to confuse enemy radar operators and also jamming hostile radar systems for the same reason.
  • $8.3 million for work on Norway's Advanced Surface to Air Missile Systems.

On June 30, Raytheon won a $163.2 million contract to perform maintenance work on U.S. Air Force and foreign air forces' Advanced Medium-Range Air-to-Air missiles. That was followed by $50.2 million in funding for work on 52 U.S. Missile Defense Agency SM-3 Block IB anti-missile missiles, and a monster $235.5 million order for parts to outfit U.S. Army, Kuwaiti, and Netherlands-based Patriot anti-aircraft batteries.

And bracketing the Fourth of July holiday was, first, an order for $162.4 million (to be split with co-manufacturer Lockheed Martin (NYSE: LMT  ) ) to supply 550 Javelin anti-tank missiles to the U.S. Army, New Zealand, and Jordan, followed by a $15.6 million order to perform maintenance on Javelins in the inventories of several allied nations.

What it means to investors
A bit of quick calculator work shows that the past month has Raytheon racking up in excess of $1.7 billion in missile sales and service contracts for the U.S. and its allies. And that's not even counting funds awarded for such things as Excalibur "smart" howitzer ammunition, and work on the power system for the U.S. Navy's new generation of ship-borne electromagnetic railguns.

And capping it all off, just this week the Pentagon announced that Raytheon will participate in a truly massive, $11 billion arms deal with Qatar, supplying that nation's military with its first batch of Patriot surface-to-air missile systems, hundreds of missiles to equip them, and a bonus batch of 500 new Javelin anti-tank missiles to boot. Raytheon's cut after splitting revenues with partner Lockheed Martin -- probably on the order of $2 billion from the missile portion of this contract.

That all sounds like a lot of money. Assume the confirmed missile contracts fall under Raytheon's missile systems business, which provides about 28% of Raytheon's annual revenues, according to data from S&P Capital IQ. The past month's awards would come close to covering 100% of the revenues Raytheon ordinarily books in a month -- and generate operating profit margins of 12.6% for Raytheon. And that's not even counting the billions in revenues to be reaped from this week's Qatari arms deal, which should go a long way toward repairing the (actually pretty modest) declines in backlog we saw at Raytheon last quarter.

The moral of this story? Raytheon shares are down 2% over the past month. But if the contracts keep rolling in the way they have been, these shares won't remain down for long.

And one more thing ...
Did we mention that Raytheon pays its shareholders a tidy 2.5% dividend yield? Mustn't forget that part. The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Will Raytheon stock blast off like a Javelin anti-tank missile? If it keeps selling the things at this rate, it should. Photo: Wikimedia Commons.

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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.

  • Report this Comment On July 17, 2014, at 10:02 AM, AZDinkster wrote:

    It always bothers me when jounalists do not properly identify anything defense-related or military... In this article: "Seasparrow anti-ship missiles" NOT AN ANTI-SHIP MISSILE, BUT AN AIR DEFENSE MISSILE.

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Rich Smith

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

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