Raytheon's Patriot Missiles To See Sales Growth: Here's Why

Raytheon Company (NYSE:RTN) is noticeably optimistic about the prospects of its Patriot air defense missile systems, mainly because of rising demand amid ongoing global tensions.

But Why would Sales Grow?

Like the U.S. and its allies, other nations across the globe are utilizing advanced technology to strengthen their defense systems. Raytheon makes the popular Patriot missile defense interceptors and has consistently focused on upgrading this missile defense system in order to keep pace with the changing dynamics of modern warfare.

Apparently, a growing interest in including a 360-degree active electronically scanned array radar to the Patriot Air Defense systems would lead to sales growth.

Last year, the company received approval from the U.S. government to export the new radar to countries that use the Patriot missile defense systems. The new radar offers a 360-degree view of possible threats, provides additional reliability in operations, and lowers operating and maintenance costs.

According to Thomas Kennedy, Raytheon’s chairman and chief executive, escalating conflicts between nations and the anxiety related to ballistic missile threats are spurring the demand for precision weapons and missile defense. In such a scenario, Raytheon has come forward to meet these demands, boosting the pace of production and working through the supply chain and its factories.

The global demand for missile defense mainly due to the U.S.-led airstrike campaign against the Islamic State group has positioned Raytheon favorably. Demand for missile defenses also saw an upside in Asia as North Korea continues to test mobile and sea-based ballistic missiles. Thus, so far, the company’s international pipeline has witnessed the strongest growth so far.

What is Raytheon Projecting?

Raytheon is projecting growth of around 3–5%, or almost $1.1 billion in 2016, in revenues, from $23.3 billion recorded last year. A major chunk of revenues are expected to be driven by sales growth of missiles.

Improvements in Patriot

Raytheon has been striving to improve its missile defense portfolio. Its efforts include the introduction of the new Patriot seeker and the gallium nitride radar, which is capable of tracking ballistic missiles. Note that the U.S. Department of Defense was looking to use Patriot against various other targets such as cruise missiles and aircraft.

Operators of the missile defense system are also in discussions to decide potential software and hardware upgrade which will enable the weapon system to adapt easily to newer kinds of threats.

Potential Challenges

According to Wes Kremer, president of Raytheon's Integrated Defense Systems business, last year, Germany had chosen Lockheed Martin Corp.’s (NYSE:LMT) MEADS system over Patriot. The German government had also voiced its plans of replacing the Patriot systems that were purchased in 1980s. Nevertheless, a number of milestones were set up for the companies to obtain the contract. Raytheon is waiting for a change in this decision.

About Raytheon’s Patriot

Patriot is a long-range, high-altitude, all-weather system designed to counter threats from tactical ballistic missiles, cruise missiles and advanced fighter aircraft. This missile defense system was successfully used during the 1991 Gulf War and Iraqi War. The Patriot missile defense systems have seen a number of buyers in recent times, including international customers like Qatar and Korea.

Raytheon currently has a Zacks Rank #2 (Buy).

Other Stocks to Consider

Investors interested in the aerospace and defense equipment sector may also consider B/E Aerospace Inc. (NASDAQ:BEAV) and AeroVironment, Inc. (NASDAQ:AVAV) , both carrying the same Zacks Rank as Raytheon.

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