Raytheon Hits 52-Week High On Investments, Foreign Sales

Shares of Raytheon Company RTN scaled a new 52-week high of $133.98 on Jun 3, before closing a little lower at $133.86. With a market cap of around $39.75 billion, the company has seen its shares gain roughly 8.7% in the past one year, outperforming the 2.7% gain of the S&P 500 over the same period.

What’s Driving Raytheon?

Raytheon is one of the best-positioned large-cap defense players due to its non-platform-centric focus. The company has been investing heavily in technological upgrades. It has also been focused on acquiring surveillance and cybersecurity companies in order to boost its intelligence business and leverage the commercial prospects of cyber. With the U.S. fiscal 2016 bill emphasizing cyber programs, cyber-oriented work is expected to yield solid growth in the coming years.

In Oct 2015, Raytheon acquired Herndon, VA-based Foreground Security in a bid to enhance its cybersecurity and electronic warfare capabilities. Foreground Security, now operating as Raytheon Foreground Security (“RFS”), boasts a strong portfolio of solutions and proprietary technology in some of the booming segments of the cybersecurity space. These should help Raytheon expand its managed security services to the federal, international and commercial markets.

In the recent years, the company has invested more than $3.5 billion to expand its cybersecurity capabilities. It aims to provide best-in-class security solutions to the U.S. Department of Homeland Security to counter rising cyber threats.

Meanwhile, Raytheon maintains a distinct focus on its overseas business. Foreign military contracts continue to be the key growth driver at the company. International bookings comprised 26.7% of the total first-quarter bookings. Also, international sales were up 17.1% and represented 42% of the total backlog. In particular, rising demand from the Gulf countries as well as the Asia-Pacific region is turning out to be the company’s key revenue driver. Again, new opportunities in Asia as well as competitive awards in Europe continue to develop.

Moreover, Raytheon continues to be a strong cash generator, which helps it to take important cash deployment decisions. In the first quarter of 2016, the company’s operating cash flow from continuing operations surged 490.9% year over year.

As far as investor-friendly moves are concerned, the company repurchased 3.2 million shares of its common stock for $400 million during the first quarter. In Feb 2016, the company’s board of directors approved a 9.3% hike in the annual dividend to $2.93 from $2.68 per share. The board has also authorized the payment of a quarterly cash dividend of 73.25 cents per outstanding share of common stock. This marked the 12th consecutive annual dividend increase by the company.

Raytheon currently has a Zacks Rank #3 (Hold).

Stocks to Consider

Few better-ranked stocks in the industry include BAE Systems plc BAESY, HEICO Corporation HEI and CAE Inc. CAE. While BAE Systems sports a Zacks Rank #1 (Strong Buy), both HEICO Corporation and CAE Inc. carry a Zacks Rank #2 (Buy).

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