Please ensure Javascript is enabled for purposes of website accessibility

Surprise! The U.S. Navy Has a New Ship-Killing Missile

By Rich Smith - Feb 14, 2016 at 12:13PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Navy repurposes Raytheon's most advanced antiaircraft missile for surface warfare.

Raytheon Company's (RTN) Standard Missile 6 (SM-6) is one of America's most advanced missiles.

Up, up, and away goes Raytheon's Standard Missile-6. Will profits go up, too? Image source: Missile Defense Agency via Raytheon.

Built upon the company's legacy Standard Missile airframe, and boasting guidance technology imported from the company's air-to-air missile expertise, SM-6 takes AMRAAM tech out of the air, and stows it aboard a ship -- there to shoot down incoming anti-ship missiles. Designed to slot right into a MK 41 VLS canister, SM-6 can be carried aboard any of the U.S. Navy's fleet of Ticonderoga-class guided missile cruisers and Arleigh Burke-class guided missile destroyers. It's tailor-made for defending U.S. warships from hostile anti-ship missiles.

And now the SM-6 is being turned into an anti-ship missile itself.

The best defense is... a pretty good offensive weapon, too
Last week, U.S. Secretary of Defense Ashton Carter announced a new initiative to modify Raytheon's powerful SM-6 "so that in addition to missile defense, it can also target enemy ships at sea at very long ranges." In what the SecDef called a "twofer," the SM-6 will be tweaked so that, depending on the mission, one single missile can be tasked with either a defensive role -- shooting down incoming missiles and aircraft -- or an offensive role -- targeting enemy warships.

In an anti-ship role, SM-6 would use targeting data from an E-2D Advanced Hawkeye aircraft overhead at the outset, then switch to its own on-board radar on final approach. When it's linked into a naval squadron's integrated fire control battle network, National Interest magazine posits that an SM-6 could strike targets as far out as 250 nautical miles (or more) when assigned an anti-ship mission.

Mind you, designed for primarily an anti-air role, the SM-6 doesn't carry a large warhead. But NI notes that when traveling at Mach 3.5, the missile would contain significant kinetic energy upon striking a target. By my calculations, a 1.5-ton SM-6 missile, moving at Mach 3.5 (1,200 meters per second), would strike with the energy equivalent of a quarter-ton of TNT. That's close to the destructive force of Boeing's (BA 1.26%) new-and-improved "Harpoon Next Generation" anti-ship missile with its 500-pound warhead.

What it means to investors
I don't mention Boeing here by chance, either. Because, as it just so happens, Boeing and its Harpoon are currently racing against Raytheon to win valuable Navy contracts to boost the offensive potential of its missile force.

Boeing's betting that the Navy will go with the proven performance of its Harpoon -- 7,500 units sold over the past 40 years. Raytheon, on the other hand, may have a stronger case to make for a "twofer" SM-6 missile, which can be used on both anti-air and anti-ship missions, thus satisfying two needs for the Navy while taking up only one missile's-worth of valuable ship space.

That's a powerful argument in Raytheon's favor -- but how much might it be worth to the company and its investors?

It's hard to say, exactly. According to the military hardware specialists at BGA-Aeroweb, Raytheon only shifted into full-rate production on the SM-6 -- Raytheon's most advanced Standard Missile variant -- in 2013, and only delivered its first full-rate-production SM-6 in April of last year. Over time, though, the Navy plans to buy a total of 1,800 SM-6 missiles. At an estimated $3.2 million per missile, the SM-6 program could be worth as much as $5.8 billion in revenues to Raytheon. At the 13% operating profit margin common within Raytheon's missile systems division, that works out to more than $765 million in pure profit for Raytheon -- or more than $2.50 per share. And that's if the Navy doesn't increase its purchases of SM-6 missiles in response to their newfound ability to do double duty aboard ship.

So in short, how big of a deal is SecDef's decision to declare the SM-6 a "twofer?"

It's a pretty big deal.

Sometime soon, Boeing's Harpoon II might have to go head to head with Raytheon's SM-6 for Navy missile contracts. Who will win? Hint: The SM-6 missile can shoot down other missiles, but the Harpoon can't. Image SOURCE: U.S. NAVY.

Rich Smith owns shares of Raytheon -- but even in light of the SM-6 news, he's pretty optimistic about Boeing stock, too. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 241 out of more than 75,000 rated members.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Raytheon Company Stock Quote
Raytheon Company
The Boeing Company Stock Quote
The Boeing Company
$169.99 (1.26%) $2.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.