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by trader on April 13, 2017

Raytheon Company (NYSE:RTN) plans to partner with a Saudi electronics firm to grow its presence in the Gulf

Raytheon Company (NYSE:RTN) plans to partner with a Saudi electronics firm to grow its presence in the Gulf, part of a push to expand global commercial sales, its international chief executive said this week.

Raytheon, one of the largest U.S. arms makers, announced an agreement at the Dubai Airshow with Riyadh-based Advanced Electronics Co (AEC) to explore collaboration on weapon systems, integrated sensors, civil aviation and cybersecurity.

“We see significant growth in the international marketplace, and the GCC figures prominently in that growth plan,” John Harris, the chief executive of Raytheon International, told Reuters at the air show on Wednesday, referring to the Gulf Cooperation Council group of countries.

The Gulf region is the largest market driver in the arms industry, buying billions of dollars of military equipment each year. Saudi Arabia spent $7.7 billion in 2014, more than double any of its neighbors, according to research firm IHS.

Saudi Arabia uses the Raytheon Patriot missile and air defense system, and was recently cleared to receive $5.4 billion in new PAC-3 missiles built by Lockheed.

Raytheon and AEC already work together on manufacturing of components for the kingdom’s program to buy F-15 fighter jets from Boeing Co (BA.N).

The agreement reflects Raytheon’s new focus on building partnerships with local firms in targeted markets, and expanding into related commercial fields, instead of focusing on single weapons programs as it has in the past.

“Our play (in Saudi Arabia) is not only in the defense sector, but also in the commercial marketplace,” said Harris, citing cybersecurity and air traffic control as prospective growth areas for international sales.

Harris said Raytheon had nine customers in Saudi Arabia, but gave no details on its sales in the kingdom. He said the GCC figured prominently in Raytheon’s plan to keep expanding foreign sales, which already account for 30 percent of total sales.

Raytheon has also invested heavily in building its cyber capacity in recent years, making several acquisitions in the cyber market over the past decade, said Harris.

Earlier this year, Raytheon bought network security provider Websense in a deal worth $1.9 billion, adding more than 20,000 commercial customers to its predominantly government clients to address private sector data breaches.

AEC, which splits its business evenly between commercial and military work, has also moved into the cybersecurity market in recent years, spokesman Khalid Turki said.

AEC has clients in the defense, telecommunications and industrial sectors, including state-run oil giant Saudi Aramco, which was hit by a crippling cyber attack in 2012 that damaged some 30,000 computers.

Harris declined to comment on whether Raytheon’s partnership with AEC might include projects at Aramco.

Raytheon Equity Analysis

Raytheon Company (NYSE:RTN) opened trading today as $121.68 and is trading in the range of 117.88-122.55 today. Raytheon’s current market cap stands at $36.63 billion.

Compared to other peers in the Aerospace/Defense Products & Services sector, Raytheon hasn’t performed in terms of quarterly revenue growth year over year at 0.06 vs. the industry average of 0.18. Raytheon’s earnings per share is currently at 6.79, which surpasses the sector average of 1.68.

Raytheon is currently covered by 19 Wall Street analysts. The mean target price is $130.75 according to First Call. This presents a solid upside to the current price of the equity. The Mean Recommendation sits at 1.8 which is based on 9 Strong Buy, 6 Buy and 4 hold ratings.

The most recent analyst actions consisted of BofA/Merrill upgrading the stock on July 28th

The current quarter EPS consensus estimate is 1.78 with revenue estimates of 6.29B. Sales are expected to grow at a 2.40% rate. Raytheon reported actual earnings last quarter of 1.47 which beats the 1.43 consensus estimate, a 2.80% surprise.

Corporate Profile

Raytheon Company develops integrated products, services, and solutions in the areas of sensing; effects; command, control, communications, and intelligence; mission support; and cyber and information security worldwide. It operates in four segments: Integrated Defense Systems (IDS); Intelligence, Information, and Services (IIS); Missile Systems (MS); and Space and Airborne Systems (SAS). The IDS segment provides integrated air and missile defense; radar solutions; naval combat and ship electronic systems; command, control, communications, computers, and intelligence solutions; and air traffic management systems. The IIS segment offers a range of technical and professional services to intelligence, defense, federal, and commercial customers, as well as specializes in intelligence, surveillance and reconnaissance, navigation, DoD space and weather solutions, cybersecurity, analytics, training, logistics, mission support, and engineering and sustainment solutions. The MS segment develops and supports a range of weapon systems, including missiles, smart munitions, close-in weapon systems, projectiles, kinetic kill vehicles, directed energy effectors, and combat sensor solutions. The SAS segment provides electro-optical/infrared sensors, airborne radars for surveillance and fire control applications, lasers, precision guidance systems, signals intelligence systems, processors, electronic warfare systems, communication systems, and space-qualified systems for civil and military applications. Raytheon Company serves the U.S. Department of Defense (DoD), the U.S. Intelligence Community, the Federal Aviation Administration, the U.S. Armed Forces, the National Oceanic and Atmospheric Administration, Department of Homeland Security, the National Aeronautics and Space Administration, and other international customers. The company was founded in 1922 and is based in Waltham, Massachusetts.

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