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...
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.
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.