By: Zacks Equity Research

Raytheon Company (RTN) said Wednesday the U.S. Congressional and State Department approved its $1.7 billion contract with Saudi Arabia for upgrading the kingdom's Patriot air and missile defense system.

The contract, announced in June this year, is for upgrading the system to the latest Configuration-3. In includes ground-system hardware, a full training package, support equipment upgrades and an interoperability capability to support potential coalition operations.

Patriot is the affordable, low-risk and effective air and missile defense system of choice of 12 countries around the globe. It is a long-range, all-altitude, all-weather air defense system that counters tactical ballistic missiles, cruise missiles and advanced aircraft. It is co-manufactured by Raytheon and Lockheed Martin Missiles and Fire Control, a business unit of Lockheed Martin Corporation (LMT).

Raytheon is one of the best-positioned companies among the large-cap defense players because of its non-platform-centric​ focus. Looking forward, the company enjoys strong order bookings and order backlog, an improving balance sheet, growing cash flow, and operational improvements. Future growth will be driven by its focus on ISR unmanned systems, training, cyber security, Standard Missile-6, Patriot, Zumwalt and THAAD.

However, apprehensions over future growth of the U.S. defense budget, the fate of high-cost programs, risks related to key project executions and order cancellations. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

In October this year, Raytheon Company reported third-quarter 2011 adjusted earnings of $1.39 per share, beating the Zacks Consensus Estimate of $1.33. Revenue reported by Raytheon in the quarter under review was $6.13 billion, down 2% from $6.27 billion in the year-ago period and also short of the Zacks Consensus Estimate of $6.39 billion.

Based in Waltham, Massachusetts, Raytheon Company is a technology and innovation leader specializing in defense, homeland security and other government markets throughout the world. The company provides state-of-the-art electronics, mission systems integration and other capabilities in the areas of sensing, effects, and command, control, communications and intelligence systems, as well as a broad range of mission support services.

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