Raytheon Technologies (RTX, Financial) is a major player in the U.S. aerospace and defense industry. The company provides products and services to the U.S. government and commercial customers alike, such as missile systems for U.S. Air Force that successfully carry out missile defense strategies. The company is responsible for producing a wide range of military products and systems for radar, sonar and electronic warfare.
Raytheon Technologies has become increasingly important due to the Russia-Ukraine crisis. The company's products are critical to the defense of the U.S. and its allies. Raytheon Technologies is also a major supplier of military equipment to NATO countries. Its importance will likely continue to grow in the years ahead as key contracts reaffirm its market position.
In addition, the stock has a history of strong performance during periods of economic volatility. In times of conflict and geopolitical tensions, governments typically increase their spending on defense systems, and conflicts are more likely to arise when economies are struggling. This increased demand leads to higher sales and profits for Raytheon Technologies. As a result, the company's stock is often seen as a safe haven for investors during times of economic uncertainty.
Contracts keep piling up
Raytheon Technologies' products and services include aircraft engines, missiles, radar, electronic warfare systems, and cybersecurity solutions. The company has a long history of working with the U.S. government, and its products are used by the U.S. military and other government organizations worldwide. Raytheon Technologies is constantly signing new contracts with these organizations, ensuring a steady revenue stream. In addition, Raytheon Technologies is in a strong financial position, allowing it to invest in new products and technologies.
Raytheon has seen a considerable amount of action in the past few months. Recently, it inked deals with the Air Force, Navy and Army for supplies. Most notably, the U.S. Army has ordered $625 million worth of stingers to replenish supplies for the Ukrainian troops.
Raytheon was also given a $1 billion contract by the U.S. Air Force to develop and produce hypersonic cruise missiles. The initial delivery of the missiles is expected in March 2027. The company has also received government approval to supply Kuwait with military products worth $3 billion.
Trouble abroad
One area of concern investors will want to keep an eye on is the commercial aviation business. Pratt & Whitney is a Raytheon Technologies unit that produces aircraft engines. The company builds engines for both Airbus (EADSY, Financial) and Boeing (BA, Financial) but is running into shortages like the rest of the industry. Therefore, some deliveries from this year will eventually materialize in the first quarter of next year. Pratt & Whitney provides Airbus with all A220 jets and about half of its A320neo planes. Boeing and Airbus are trying to ramp up their aircraft production as the air travel industry is returning to normal. However, Raytheon does not have the requisite firepower to deliver on this increasing demand just yet.
Another big issue is that Russia is Raytheon's primary source of aluminum and titanium, two raw materials that are essential for many of the company's products, including aircraft engines. As a result, the sanctions on Russia imposed by the U.S. and the European Union due to the war could result in millions of dollars in lost revenue for Raytheon. While the company has attempted to diversify its supply chain to mitigate the risk posed by the sanctions, there is no doubt that they will significantly impact Raytheon's bottom line.
Meanwhile, the company faces issues in China caused by the U.S. Government's arms sales to Taiwan. The Chinese government has decided to sanction the bosses of Boeing Defense and Raytheon. China's Foreign Ministry spokesperson Mao Ning did not provide any details about the sanctions, but both companies do have aviation businesses in China. Neither company sells defense products to mainland China. Although it is unclear how the issue will affect the company’s bottom line, even a slight whiff of negative publicity can affect the stock price during a bear market.
Despite these troubles, Raytheon reaffirmed its fiscal year sales forecast of $67.75 billion to $68.75 billion and other financial figures, as well as its plan to buy back at least $2.5 billion worth of shares in this time frame. The company is holding steady now, so value investors need not be perturbed.
Takeaway
Raytheon is a high-quality company with a strong competitive position, and it is well-positioned to continue generating long-term shareholder value.
It has a strong balance sheet, as demonstrated by the GuruFocus financial strength rating of 5 out of 10. A strong balance sheet indicates that the company is in good financial health and can continue operating and growing. Raytheon's free cash flow stands at more than $4 billion for the trailing 12 months that ended in June 2022.
Raytheon is a company that provides innovative aerospace and defense solutions to complex global environments. It has an excellent track record of meeting the needs of its customers. Raytheon's products are in demand by militaries worldwide, and its products are supported by an extensive global network of service and support locations. The macro environment is ideal, even if the company does face some short-term roadblocks. Overall, I think Raytheon Technologies is now more relevant than ever.
