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 -1.08%) 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.