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Raytheon (RTX) Wins $358M Navy Deal to Support ESSM Program

Raytheon (RTX), as part of a contract with a potential value of $1.28 billion, is going to meet Evolved Seasparrow Missile (ESSM) Block 2 full-rate production requirements.

This story originally appeared on Zacks

Raytheon Technologies Corp. RTX recently clinched a contract to deliver fiscal 2021-2023 Evolved Seasparrow Missile (ESSM) Block 2 full-rate production requirements. The Naval Sea Systems Command, Washington, D.C. awarded the deal.

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Details of the Deal

Valued at $358 million, this contract includes options, which on being exercised will bring the cumulative value to $1.28 billion. A major portion of the work related to this deal will be carried out in Tucson, AZ.

The entire task is expected to be completed by March 2027 if the options are exercised or by otherwise March 2025.

This contract will serve the U.S. Navy and the governments of Canada, Australia, Greece, Germany, Norway, Turkey, Portugal, Belgium, the Netherlands and Denmark under the NATO Seasparrow Consortium

Significance of ESSM

The ESSM program is an international cooperative effort to design, develop, test, and procure ESSM missiles, which provide enhanced ship defense against high-speed, highly maneuverable anti-ship missiles in the naval environment including aircraft, high and low-velocity air threats.

The program is a global joint initiative undertaken by the United States, the North Atlantic Treaty Organization (NATO) and other allied nations. At present, ESSM has more than 2,000 proven rounds in service or in production, with another 1,500 rounds anticipated.

What’s Favoring Raytheon?

Increasing geopolitical tensions across the globe have prompted nations, both developed and developing, to strengthen their defense systems manifold. Following the rapid technological advancements, missile defense has steadily emerged as a key catalyst for the nation’s defense strategy.

With the United States being the world’s largest weapons supplier and Raytheon Technologies being a prominent U.S. missile maker, the company has been clinching significant awards for the enhancement of its missile defense systems with the latest technologies and providing its end users with complex technical services. The latest acquired contact is one such example.

Notably, the U.S. fiscal 2022 defense budget proposal provisioned $20.4 billion for investments in missile defense. This should enable Raytheon Technologies to clinch more contracts related to various missile defense systems and associated services.

Considering the aforementioned developments, it is reasonable to expect Raytheon’s Missiles and Defense segment, which witnessed 15% year-over-year growth in the second quarter of 2021 to put up a similar stellar show in the coming days.

Growth Prospects

Per a report by Fortune Business Insights, the global rocket and missile market is projected to increase from $52.5 billion in 2019 to $71.8 billion by 2027, at a CAGR of 4.52%. Such massive growth projections indicate solid opportunities for prominent missile manufacturers like Raytheon Technologies along with Northrop Grumman NOC, Lockheed Martin LMT, and Boeing BA.

Price Movement

In the past year, Raytheon Technologies’ shares gained 50% compared with the industry’s 40.8% growth.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank

Raytheon Technologies carries a Zacks Rank #3 (Hold), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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