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Why Raytheon Stock Jumped 13% in February

By Reuben Gregg Brewer - Updated Apr 11, 2019 at 11:07AM

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It was a strong month for the military industrial giant, thanks to good news that began arriving in January

What happened

Shares of Raytheon ( RTN ) rose 13% in February according to data provided by S&P Global Market Intelligence. It was a continuation of a trend for the military industrial company, which gained roughly 21% in the first two months of the year. That February gain, meanwhile, easily outpaced the performances of some of its largest peers. But the news driving it really started in January.

So what

On Jan. 31, Raytheon delivered its fourth-quarter earnings report, and it was fairly good reading. Sales were up 6.7% for the full year and earnings advanced 46%. Cash flow, meanwhile, hit a record at $3.4 billion. However, one of the most compelling pieces of information was that the company booked $32.2 billion worth of new business in 2018. That resulted in a book-to-bill ratio of 1.15.   

Check out the latest earnings call transcript for Raytheon.

Rockets lined up in a row.

Image source: Getty Images

That ratio is important because it means Raytheon more than replaced all of the work it completed in 2018, thus growing its backlog of future business. That, in turn, suggests a brighter future. Indeed, its $42.2 billion backlog is the highest in the company's history. And it reported additional contract wins in February, which will keep the good news rolling.   

The company's outlook for 2019, meanwhile, was also fairly positive, including continued revenue and earnings growth. The projections also call for the repurchase of as many as 8 million shares, showing that Raytheon is willing to share its success with its investors.   

Now what

After the nice run it has had to start off 2019, Raytheon stock isn't nearly as compelling as it looked in late 2018. And even then, it wasn't exactly a great bargain. That said, the stock's valuation metrics are somewhat mixed today. Although price-to-sales and price-to-book value are both above their five-year averages, the price-to-earnings, price-to-cash-flow, and price-to-earnings-to-growth (PEG) ratios are below their five-year averages. The last metric suggests that the company's growth potential isn't fully reflected in its price today. Few would suggest that Raytheon is a screaming buy, but for investors willing to pay full price for a well-positioned company, it might be worth a closer look. Just keep in mind that the stock has already had a big run in 2019.   

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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