Raytheon is America’s preeminent vendor of advanced aerospace technology products, mission critical for 21st century warfare. Hypersonic missiles, space to space command and control systems, cyber warfare, satellite reconnaissance/surveillance/smart drones and defence electronics.
The stock has been a beauty, rising from 55 on Election Day to 89 now even though the Republicans lost the White House. This is the testament to the fact that its product menu is so avant-garde that it will not be materially impacted by cuts in military spending under President Biden.
Raytheon is also a major supplier of Rockwell Collins original equipment/aftermarket services to the global commercial aircraft industry and thus benefits from the post pandemic recovery in air traffic. Pratt jet engine utilization rates have improved more than GE, Safran and Rolls.
The Western world (NATO) and American allies around the world need Raytheon to equip and upgrade the air forces to combat the geopolitical challenges posed by Russia, China, Iran, North Korea and international terrorist networks like the Taliban, Al Qaeda, Hezbollah and ISIS.
Raytheon’s core franchises are thus stable growth engines as long as the civilised world relies on Uncle Sam for its collective security. These franchises include Patriot missiles and F-35 engine support.
The Q2 earnings were a blowout (no pun intended!) and CEO Greg Hayes promised both margin expansion and $10 billion in free cash flow by 2025.
The Pentagon budget is very supportive for Raytheon’s missile defence and space warfare programs, 60% of total revenues. While I believe the easy money on Raytheon has now been made, I would not be surprised to see this puppy trade at 100 to 105 in the next 6 months.