Raytheon Company is a leading technology company providing defense, civil government and cybersecurity solutions to domestic and international customers worldwide.
Raytheon is known for building advanced cyber defenses in operational systems which have helped the U.S. to maintain its operational and technical dominance in mission-critical areas. Not only the US, but other friendly nations also rely on Raytheon’s proven interceptors, radars and space sensors.
The company operates through five segments:
- Missile Systems (30% of 2018 revenues),
- Integrated Defense Systems (23%),
- Space and Airborne Systems (23%),
- Intelligence, Information, and Services (22%), and
- Forcepoint (2%).
It provides a wide range of products and services in the areas of command, control, communications, and intelligence systems. Raytheon has a diversified international presence with customers in 80 countries and offices in 19 countries. About 70% of Raytheon’s sales are from the US and the balance is from European, APAC and MENA regions.Investment Data
- Opportunity Score: 65
- Ticker: NYSE:RTN
- Sector: Industrials
- Industry: Aerospace & Defense
- Market Cap: 64.42B
- P/E: 19.79
- Dividend Yield: 1.63
- Dividend Payout Ratio: 32.25
- Chowder Score: Dividend Snapshot Members Only
- 3, 5, 10-year Revenue Growth: Dividend Snapshot Members Only
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
Raytheon is an innovative leader in technology development, with a strong focus on execution and efficiency. The company has grown its revenues since 2015 with the help of a diverse portfolio of products and advanced solutions. It has a history of proven financial performance with bookings, EPS, and cash flow all growing over the same period of time.
The company invests heavily in its R&D activities and utilizes principles of quantum physics, artificial intelligence, machine learning, hypersonics, and cybersecurity to stay ahead of the competition. It owns a huge portfolio of intellectual property that includes many U.S. and foreign patents.
With a history spanning 97 years, the company has developed strong domain knowledge and maintains technological leadership in the different areas it serves. About 68% of the company’s revenues come from the U.S. government and 56% of its contracts are fixed-price contracts, while 44% is cost-plus. All these factors provide enough visibility to Raytheon’s cash flows. The company ended the most recent quarter with record bookings of $9.5 billion and a backlog of $43.1 billion, and a strong book-to-bill ratio of 1.32. The international business represents 38% of Raytheon’s current backlog.
Raytheon has successfully established a broad portfolio of technologically advanced solutions focusing on key mission areas and aligned with customer priorities. It serves a broad base of global customers in defense, civil government and cybersecurity markets. Customers prefer Raytheon for its cost-effective and value based solutions. The company is well positioned to benefit from a balanced mix of geographies and businesses. Given its long years of experience, Raytheon has developed extensive relationships with both its suppliers and customers.
Raytheon is favorably placed to benefit from the growing need for cybersecurity in a connected world. The company is very well aligned to NDS Priorities and DoD budget. Increasing international sales and broad-based demand for its advanced capabilities are strong tailwinds for the company.
Raytheon’s dividends have followed an increasing trend with 15 years of consecutive increases. The company has returned close to $9 billion in dividends and $15 billion in share repurchases to its shareholders since 2004. Raytheon raised its payout by 8.6% in 2019 supported by its strong financials. It currently sports a dividend yield of 2.12% with a reasonable payout ratio of ~34%.
Raytheon is a Dividend Achiever. The company has compounded its 10-year dividends at 12.2% annually. It also repurchased shares worth $1.3 billion in 2018. Earnings have also grown in the high single to low double-digit pace, annually in the past decade.
Raytheon’s strong cash flow and balance sheet provides it the financial flexibility for a balanced capital deployment strategy. The company’s cash flows are secure as government contracts include both cost reimbursement and fixed-price contracts. Raytheon recently announced an agreement to merge with United Technologies in June 2019. As a result of the merger, which is expected to close in the first half of 2020, the combined company will offer enhanced technology and R&D capabilities to deliver innovative and cost-effective solutions to its clients. Raytheon raised its full-year 2019 guidance for sales ($28,800-$29,300M), EPS ($11.50-$11.70) and operating cash flow ($4000-$4200M).
Raytheon competes worldwide with a number of U.S. and international companies in these markets. The company competes with the likes of Lockheed Martin, Northrop Grumman, L3 Technologies, General Dynamics. Lockheed Martin is a giant global defense company while Northrop Grumman is one of the Big Five defense contractors in the world. L3 Technologies is a leading provider of a broad range of communication, electronic and sensor systems used on the military, homeland security and commercial platforms and General Dynamics is a world-leading aerospace and defense company.
|Ticker||Company||Sector||Industry||Score||Quote||Market Cap||PE||FPE||EPS||Yield||Payout Ratio||Payments||Dividend||Chowder||Ambassador||Achiever||Aristocrat||King||Graph|
|BA||Boeing Company||Industrials||Aerospace & Defense||63||324.15||182.43||49.73||22.75||6.52||2.54||126.07||4||8.22||18.17||NO||NO||NO||NO||1|
|UTX||United Technologies Corporation||Industrials||Aerospace & Defense||53||154.40||133.29||26.12||22.75||5.91||1.90||49.75||4||2.94||5.36||NO||YES||YES||NO||1|
|LMT||Lockheed Martin Corporation||Industrials||Aerospace & Defense||71||425.66||120.07||20.22||22.75||21.05||2.26||45.61||4||9.60||12.32||YES||YES||NO||NO||1|
|RTN||Raytheon Company||Industrials||Aerospace & Defense||65||231.34||64.42||19.79||22.75||11.69||1.63||32.25||4||3.77||11.52||YES||YES||NO||NO||1|
|NOC||Northrop Grumman Corporation||Industrials||Aerospace & Defense||62||379.97||64.04||19.58||22.75||19.40||1.39||27.22||4||5.28||12.98||YES||YES||NO||NO||1|
|GD||General Dynamics Corporation||Industrials||Aerospace & Defense||70||181.89||52.62||15.76||22.75||11.54||2.24||35.36||4||4.08||12.72||YES||YES||YES||NO||1|
Raytheon is well positioned for the future with a well-aligned portfolio of industry-leading technologies and a strong financial foundation. The company should continue to benefit from the needs of its domestic customers to address advanced peer threats, as well as international nations’ focus on protecting their borders. Strong global demand for Raytheon’s innovative solutions should continue to drive bookings in the future. Given Raytheon’s competitive global position, technology, and innovation leadership; and rising trends of geopolitical risks, the company should continue its high single-digit dividend payment streak in the future.
While the merger between Raytheon and United Technologies Corp is being reviewed, the resulting company will be in a position of strength and diversification. The companies have highlighted that investors would benefit from the merger, because they would have exposure to both the defense and commercial aerospace sectors.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.