Raytheon's financials lure investors

A 2008 year-end backlog of $38.9 billion, double-digit net sales profitability, a debt load approaching zero, a nearly ideal customer mix — is it any wonder that investors are sweet on Raytheon Co.?

“Raytheon is our preferred large-cap defense company right now," said Troy Lahr, a principal at Stifel Nicolaus. “They grew their top line almost 12 percent” in 2008. "They executed very effectively over the last 12 months. It’s a very strong management team. We sleep very well at night with Raytheon.”

The company attributes its overall sales increase to a higher volume from Army programs and its boost in operating income to improved performance on several international and domestic programs and the sale of licensed software.

In the fourth quarter of 2008, the company’s Integrated Defense Systems unit booked $2.48 billion to provide advanced Patriot air and missile defense capability for the United Arab Emirates and $154 million to produce torpedo kits for the U.S. Navy.

Raytheon’s Intelligence and Information Systems unit saw net sales increase to $3.13 billion in 2008, up from $2.74 billion in 2007. The company attributes the increase to higher volumes on its international e-Borders program and the Air Force’s next-generation ground-based Global Positioning System.

“We’re fueled by our innovations and our technology,” said T.W. Scott, vice president of Raytheon Information Solutions, a subsidiary of the Intelligence and Information Systems unit. “We’re trying to be agile and aligned with President Obama’s priorities and where he wants to take the government.”

That direction increasingly appears to be information sharing and information assurance, or protecting against and predicting cyberattacks, Scott said. The Obama administration has taken an active role in adopting the latest information technology innovations but doesn’t want to compromise security, he added.

“I lose sleep over how we protect and prevent,” Scott said. “It’s easy to shut everything down. What we’re trying is an integrated approach with diverse communities, from the very public to the very private, to make sure we think of any conceivable threats and address those directly.”

To that end, in April, Raytheon announced a partnership with Narus Inc., a company based in Sunnyvale, Calif., that specializes in real-time traffic intelligence to protect and manage large IP networks. Raytheon will use the company’s NarusInsight tool to monitor, manage and protect the flow of information on a variety of government networks.

In terms of physical security, in January, the Army Biometrics Task Force tapped Raytheon to enhance its biometric defense capabilities with improvements to Defense Department infrastructure, architecture and standards. The Biometrics Operations and Support Services–Unrestricted award is a five- year, indefinite-delivery, indefinite-quantity contract with a three-year base period and two one-year options. Its maximum estimated value is $497 million.

On the federal civilian side, Raytheon is helping the FBI’s Criminal Justice Information Services division deploy the National Data Exchange system. Once N-DEx is fully implemented, as many as 200,000 investigators at 18,000 federal, state, local and tribal law enforcement agencies will be able to share information to fight crime and prevent terrorism. N-DEx users will be able to search, link, analyze and share data ranging from incident reports to details on incarcerations.

Given Raytheon’s mix of contracts, services and satisfied customers, Lahr said he sees little reason to be concerned about the company’s midterm prospects.

“As the end of the defense spending cycle nears, the other primes will try to grab some of the Raytheon pie,” he said. “But because it is so well-rounded, the company will be able to defend its markets. Outside of a severe downturn in defense spending, we don’t see any meaningful problems.”