Raytheon (NYSE:RTN) could give GE a run for its money in microwave ovens.
It's been nearly a decade since we first learned of Raytheon's groundbreaking Active Denial System for nonlethal crowd control. Essentially a big satellite dish sitting atop a power source, ADS is a directed-energy weapon that fires microwave beams that excite water molecules in a target's skin. This creates a sensation of intense heat (without causing any actual damage) that causes the target to instinctively flee the source in panic. And as it turns out, Raytheon has not been resting on its laurels since inventing ADS. Instead, it's refined and advanced the use of microwaves to tackle a new target:
As reported earlier this week by Aviation Week, Raytheon's latest microwave weapons system carries the Star Trek-kian moniker "Phaser." Similar to ADS in appearance, the new high-powered microwave weapon (HPM) blasts microwaves into the air at incoming drones. These microwaves first heat up and then disable the drones, causing them to crash to Earth.
According to AW, Raytheon says the weapon -- which actually began testing in 2013, but was not revealed until last month -- has proven effective in shooting down "drone swarms over a wide area." Indeed, according to Raytheon, Phaser doesn't even have to target a specific drone to shoot it down. Rather, any object flying into the beam emitted by Phaser "will be destroyed."
From an effectiveness perspective, that's already impressive. But Phaser also promises to address the cost concerns of an Army facing tight budgets. A single MIM-104F Patriot PAC-3 missile (produced by Lockheed Martin, but fired from a Raytheon launch system) costs $3.4 million to produce. That's a lot of money to spend to shoot down a drone that might cost just a few tens of thousands of dollars.
Advances in laser technology already promise to cut that cost down to less than "a dollar a shot." And now, Raytheon is making another order of magnitude improvement. According to Raytheon executive Steve Downie, Phaser can shoot down a UAV for mere "cents per firing." The cost, says Downie, is literally "negligible compared to a missile."
What it means to investors
In a world of stagnant-to-declining defense budgets, it's hard to overemphasize the attractiveness of directed-energy weapons such as lasers, ADS, and now, Phaser.
For one thing, it costs a lot less to generate the electricity to power a directed-energy weapon than it does to build an antiaircraft missile. For another, it costs money to ship, store, and carry a physical missile into battle. In contrast, the electricity needed to power a directed energy weapon is a "bullet" that can be generated on-site -- no logistics chain required.
To date, we've seen no signs of the Army awarding actual contracts to acquire Phasers for its forces. This, combined with Raytheon's silence on the weapon system's cost, makes it difficult to assign a value to this new product for investors in Raytheon stock. Still, the weapon's attractiveness to military logistics specialists is self-evident, and the potential for profit is clear.
At a P/E ratio of 19.4 and a P/S ratio of 1.8, Raytheon stock may look expensive today. But if it continues breaking barriers and inventing innovative weapons like this one -- weapons as cost-effective as they are just plain effective -- there's every reason to believe that Raytheon stock will keep on growing.
Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 314 out of more than 75,000 rated members.
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