Raytheon: Steady As A Missile In A Clear Sky

Jan.22.14 | About: Raytheon Company (RTN)

Raytheon (NYSE:RTN) is a aerospace and defense company. Raytheon produces missile and other advanced electronic and IT systems, mainly for the US Government. Raytheon remains a stable investment with a climbing dividend.

This article is part of the series on the aerospace industry. Raytheon is primarily working as a defense contractor just as Lockheed Martin (NYSE:LMT) and Northrop Grumman (NYSE:NOC) who were compared in this article.

FUNDAMENTALS

All financial data used is in annual reports and 10-K's published by Raytheon.

Raytheon 2012 2011 2010 2009 2008
Revenue $24,414 $24,791 $25,150 $24,881 $23,174
Net income $1,888 $1,866 $1,840 $1,935 $1,672
EBIT $2,989 $2,830 $2,613 $3,042 $2,620
EBIT% 12.24% 11.42% 10.39% 12.23% 11.31%
FCF $1,588 $1,538 $1,525 $2,446 $1,725
EPS 5.65 5.28 4.88 4.89 3.92
Dividend $2.00 $1.72 $1.50 $1.24 $1.12
Dividend Yield 2.22%        
ROA 7.07% 7.22% 7.53% 8.20% 7.18%
ROCE 14.38% 14.35% 14.15% 16.82% 14.44%
ROE 23.05% 22.37% 18.60% 19.47% 18.40%
PE 15.94        
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The main divisions of Raytheon are:

  • Integrated Defense Systems;
  • Missile Systems
  • Space and Airborne Systems
  • Intelligence, Information and Services

Raytheon is the largest guided missile manufacturer in the world. The main risk of Raytheon is the heavy dependence on US government contracts; about 75% of the revenue comes from them.

Another issue is the classified nature of many products and services, which makes it very difficult to expand abroad. The only large market available for this is Europe. Most European countries are NATO-members and already share classified equipment (to/from the US).

The revenues and EBIT doesn't change a lot over the years and the dividend is increasing. The 2013Q3 results indicate that the results for FY 2013 will be slightly lower or equal to 2012.

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PEER COMPARISON

A European company with comparable products and service, although not exactly the same is Thales Group (OTCPK:THLEF) (OTC:THLEY) from France.

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When compared to Thales, Raytheon is more profitable. Raytheon's revenue is declining slightly, while Thales revenue is rising.

INVESTING

The dependence on the US Government is risky, but orders will keep flowing in as there aren't any competitors in the US.

At a PE of 16 and dividend yield of 2.2% Raytheon is not an expensive stock. Spectacular growth is not to be expected, but neither is big change in dividend or profit to be expected.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.