Raytheon Rides the Defense Boom as a Triple Threat

Key Points

• Raytheon is the world's largest aerospace and defense company, serving commercial aviation, space exploration and military customers.
• The company beat Q1 2024 adjusted EPS by 12 cents, and GAAP EPS grew 34% YoY.
• Raytheon shares hit 52-week highs as the $95 billion foreign aid law will drive more revenues into its coffers, which includes a Q1 2024 backlog of $202 billion.

Shares of the world’s largest aerospace and defense company, Raytheon Technologies Corp. NYSE: RTX, have launched to new 52-week highs. President Joe Biden signed a $95 billion foreign aid bill into law, which allocates $61 billion for Ukraine's aid in its war with Russia. Nearly $6 billion of initial military aid was activated, including rush shipments of Patriot missiles, which are produced by aerospace sector giant Raytheon Technologies and supplied by Lockheed Martin Co. NYSE: LMT.

Raytheon’s peers, defense companies like L3Harris Technologies Inc. NYSE: LHX and General Dynamics Co. NYSE: GD, are also hitting 52-week highs driven by the Ukraine and Israel conflicts making headlines. This has also caused other nations to order military products proactively for national defense like the $1.2 billion contract for Patriot defense systems to Switzerland last year.

Triple Threat in Segments 

Raytheon, also known as RTX Co., is a vertically integrated company with three segments: Raytheon, Collins Aerospace, and Pratt & Whitney.

Raytheon

The Raytheon division focuses primarily on defense applications, intelligence gathering, and space exploration. Raytheon designs and manufactures advanced radars, cutting surveillance, reconnaissance and missile defense systems. Implemented by 17 international countries, The Patriot is a widely known missile defense system that counters ballistic missile threats. Q1 2024 sales rose 6% to $6.7 billion, driven by higher land and air missile defense systems like the Patriot. Raytheon sold four Patriot systems to Germany in the quarter.

Collins Aerospace

Collins Aerospace is focused on aircraft integration systems or avionics, ranging from navigation, communication, and flight control systems to sensor integration and electronic warfare systems. A one-stop shop when you need aerospace systems, they serve commercial aviation, space, and military clients. Its Q1 2024 sales rose 9% YoY to $6.7 billion. Margins expanded 90 bps. Original equipment (OE) sales rose 14% YoY.

Pratt & Whitney

Pratt & Whitney designs and manufactures jet engines for several diversified aircraft, including commercial airplanes like Airbus and military planes and fighter jets like the F-35 Lightning II, F-22 Raptor, F-15 and F-16 Eagle, AWACS, B-52 and KC-46A Pegasus. Pratt's commercial installed base includes 12,000 engines and a backlog of more than 10,00 GTFs, which is expected to drive growth for decades to come. This division had the most growth, with a 23% YoY jump in sales and OE sales growing at 64% YoY to $6.5 billion.

Daily Ascending Triangle Breakout Pattern

RTX formed a daily ascending triangle breakout. The ascending trendline commenced at the 99.47 swing low on April 12, 2024. The flat-top upper trendline resistance formed near the $102.07 Fibonacci (fib) extension. The breakout formed as the ascending trendline compressed the channel with the resistance to eventual squeeze through on May 7, 2024, powered by the daily relative strength index (RSI) surge up through the 70-band. Pullback support levels are at $102.07, $97.80, $94.08 and $91.05.

Still Red But Improving 

Raytheon reported adjusted EPS growth of 10% YoY to $1.34, beating consensus analyst estimates by 11 cents. GAAP EPS rose 32% YoY to $1.28. Revenues grew 12.1% YoY to $19.3 billion versus $18.47 billion. Raytheon ended the quarter with a company backlog of $202 billion, comprised of $125 billion of commercial and $77 billion of defense. The company won over $25 billion in new orders in the quarter.

Reaffirmed Guidance 

Raytheon reaffirmed its 2024 EPS guidance of $5.25 to $5.40 versus $5.40 consensus analyst estimates. FY 2024 revenues are expected between $78 billion to $79 billion versus $78.84 billion consensus estimates. Free cash flow is expected to be around $5.7 billion.

Capacity Expansion and Next-Gen Air Defense System Launch

Raytheon President and COO and new CEO Chris Calio commented how the company is operating in one of the strongest demand periods in its history, with a record backlog of $202 billion of products and services. The focus is on execution, performance, and margin expansion. The defense side saw 7% YoY growth with a 1.05 defense book-to-bill and $77 billion in backlog at quarter's end. The company is spending $2.5 billion to expand its manufacturing capacity.

Calio remarked, “One of our most significant new products coming to the market is LTAMDS, which is the next-generation advanced 360-degree air defense radar that provides significant performance improvement against a range of threats, including UAS and hypersonics. This program recently completed another successful live fire event with representatives from seven countries in attendance. We expect both the first domestic LRIP and international FMS contracts this year.”

Raytheon analyst ratings and price targets are at MarketBeat.