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Raytheon (RTN) Wins $76M Navy Contract for ESSM Program

Raytheon Company RTN has won a contract worth $76.1 million from the U.S. Navy to purchase long lead material and provide production requirements for the Evolved Sea Sparrow Missiles (ESSM) program.

The latest contract will support the multi-year contract for fiscal 2016, fiscal 2017 and fiscal 2018 ESSM Block I. Contracting activity is Naval Sea Systems Command, WA, District of Columbia.

The ESSM program is a global joint initiative undertaken by the U.S., the North Atlantic Treaty Organization (“NATO”) and other allied nations to design, develop, examine and procure ESSM missiles. ESSM was originally developed by the U.S. Navy, along with nine other member countries of the NATO Sea Sparrow Consortium.

ESSM is the upgraded version of the RIM-7 Sea Sparrow Missile. It is a medium-range surface-to-air missile, developed by Raytheon’s unit, Raytheon Missile Systems, which provides protection against anti-ship missiles.

The latest contract includes purchases by the Navy comprising about 16% of the total production. It also covers foreign military sales to various governments including Australia, Germany, Netherlands, Denmark and Norway, all of which are part of the NATO Sea Sparrow Consortium.

Work is scheduled to be complete by May 2018. The company will carry out majority of the work in Germany, while the rest will be performed in Tucson, AZ; Mountain View, CA; Cincinnati, OH; San Diego, CA; McKinney, TX; Santa Ana, CA; Denmark; and Australia.

The contract will use fiscal 2016 weapons procurement (Navy), foreign military sales, and international funds.

Raytheon is one of the best-positioned large-cap defense players due to its non-platform-centric focus. The company will continue to gain traction on the back of its strong fundamentals, focus on technological innovation and improvement of its product offering, which will ensure more contract wins and an enhanced growth trajectory.

The company has been enjoying a steady stream of contracts from several government establishments. As a result, total backlog at the end of the first quarter of 2016 was $34.8 billion, up from $32.5 billion at the end of the year-ago quarter.

Raytheon currently has a Zacks Rank #3 (Hold).

Stocks to Consider

A few better-ranked stocks in the same space include BAE Systems plc BAESY, CAE Inc. CAE and Esterline Technologies Corp. ESL, each carrying a Zacks Rank #2 (Buy).

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