Raytheon Company (NYSE:RTN) is not a top-of-mind company in the investment universe. RTN deals in missiles, radars and guidance systems, which while pretty exciting isn’t exactly consumer-friendly stuff.
Still, while RTN doesn’t have the sexiness of Chipotle Mexican Grill, Inc. (NYSE:CMG) or the rabid following of Apple Inc. (NASDAQ:AAPL), if you’re looking for a solid addition to your portfolio, Raytheon stock might be better than those and other popular momentum players.
Here are a few reasons why you should like RTN right now.
Periods of Uncertainty Favor Defense Stocks
There’s really no way to put this delicately, so I’ll cut to the chase. Defense stocks typically do well when the country is in a state of war or gearing up for conflict.
It’s no mere coincidence that when the U.S. assembled a coalition to combat ISIS in September 2014, Raytheon stock picked up a little steam. Raytheon also was on the rise in 2013 when tensions in Syria were taking center stage.
That’s not to say those are the only factors driving RTN at the time, but they certainly contributed.
There’s no indication the conflict will end any time soon; in fact, the war could last up to three years, according to some senior administration officials.
(And naturally, if and when this conflict does end, history tells us there’ll inevitably be another on the horizon somewhere else in the world.)
Raytheon Stock a Value in Its Sector
Compared to other defense stocks, RTN — which trades at 15 times trailing earnings and 15 times next year’s estimates — is a decent value. Lockheed Martin Corporation (NYSE:LMT) trades for 18 and 16 times those respective earnings, it’s 17 and 16 for Northrup Grumman Corporation (NYSE:NOC) and it’s 19 and 15 for General Dynamics Corporation (NYSE:GD).
Meanwhile, the company has substantially increased the dividend on Raytheon stock over the past decade, including a 60% improvement over the past five years. While it yields a modest 2.2%, that still tops the 10-year Treasury, as well as sectormates NOC (1.7%) and GD (1.8%). LMT is higher, at roughly 3%. Also, based on past increases, RTN is due to ramp up its dividend here in the next month or so.
Latest Acquisition Signals Growth Opportunity
Unlike LMT and NOC, Raytheon has not been known as a drone manufacturer, although it does make parts for the vehicles. That all changed in February when RTN acquired Sensitel, an Arizona-based drone manufacturer.
Motley Fool’s Rich Smith points out that Raytheon might have a good idea on its hands with this latest acquisition.
“As a general rule, drones being built by the industry’s leaders are all designed to be reusable. …
But from an investor’s perspective, I actually prefer Raytheon’s approach, which seems to me designed to emphasize recurring revenues from the replacement of expendable weapons. Because, you see, the drones Raytheon builds … are designed to crash.”
RTN Performs Well in a Weak Economy
Raytheon stock traded positively more than 90% of the time during periods when the economy had slowed, with an average return of 15%. Part of this has to do with the fact that RTN derives a significant portion of its revenue from foreign sales; the planet will never run short on countries that want weapons.
With its near recession-proof model, it’s no wonder RTN beat analysts’ estimates for Q4 2014. RTN reported Q4 2014 earnings of $1.86, edging out the Zacks estimate of $1.78 by 4.5%.
Bottom Line
Raytheon stock currently is trading near all-time highs and has nearly doubled in the past two years. But as long as it’s still trading for a decent valuation and has so many positive drivers, it’s worth trying to ride RTN stock a little while longer.
As of this writing, Will Emerson did not hold a position in any of the aforementioned securities.
