If you’re looking to profit from the inexorable rise of the machine, consider Raytheon (RTN), which specializes in the development and manufacture of the ultra-sophisticated sensors that guide unmanned aerial vehicles.
UAVs are always willing to die for their country. They’re the darlings of Pentagon war planners, who embrace UAVs as the ultimate weapon. These pilotless drones project military power without “boots on the ground” and they epitomize leading-edge technology in a military that’s still evolving away from the legacy weapons of the Cold War.
President Obama campaigned to end the wars in Iraq and Afghanistan, but the irony is that he has increased America’s military commitment in those areas — and a major part of that commitment is a heavier reliance on UAVs. Not only are UAVs the futuristic weapons of the 21st century, but they’re also becoming more pervasive in the public sector, for firefighting, police and border surveillance, and a host of other civilian uses.
Raytheon — a diversified defense contractor based in Waltham, Massachusetts — specializes in UAV sensors, which command a higher premium that the manufacture of the UAV fuselage.
Meanwhile, continued hostilities around the world are boosting military budgets in many countries, despite austerity measures in other fiscal areas. That plays out well for RTN stock, too, as Raytheon develops and makes a wide variety of other commercial and military electronics that are in growing demand. The U.S. is now deploying UAVs to initiate missile strikes against terrorists and insurgents in Iraq, Afghanistan, and other “hot spots.” This trend won’t end anytime soon.
Back to the sensors: These are the complex components that enable UAVs to fly, target and shoot without pilots. These sensors also process and transit information back to the UAV’s handlers on earth. As the biggest guided missile producer on the planet, Raytheon dominates the sensor market and is reaping a bonanza of military orders — as shown by its latest operating results.
Raytheon by the Numbers
In the second quarter, Raytheon reported earnings per share of $1.59, for a year-over-year increase of 6%. Much of that growth was driven by foreign demand, especially from Asian countries where geopolitical tensions are on the rise.
In an auspicious sign for future growth, Raytheon’s new bookings in the second quarter reached $6.8 billion vs. $5.3 billion in the year-ago period. Raytheon’s goal is to rack up total bookings of about $23.5 billion in 2014. Orders for electronics, missiles and UAV sensors from the U.S. and overseas customers should assist the company in reaching this yardstick.
Also in the second quarter, Raytheon repurchased 2.6 million shares of common stock for $250 million as part of its share buyback program.
For 2014, Raytheon’s management reaffirmed its top-line projection of between $22.5 billion and $23 billion; EPS guidance was kept in the $5.76 to $5.91 range.
Meanwhile, Raytheon’s trailing 12-month price-to-earnings ratio of 14.2 compares favorably to the P/E of 19.2 for its industry of aerospace/defense.
Bottom Line
If you’re looking for a stable growth stock that’s capitalizing on a secular global trend, Raytheon should be on your radar.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
