Tags: Raytheon | RTN | defense | stocks

Raytheon: Watching Out for Budget Cuts

By    |   Wednesday, 20 Jul 2011 12:21 PM

Military spending cuts are taking their toll on Raytheon (RTN), a $25 billion defense and aerospace company. The company supplies state-of-the-art missiles, radar, sensors, and intelligence, surveillance, and reconnaissance systems to the U.S. and foreign militaries. For the first quarter of 2011, Raytheon profits from continuing operations dropped to $383 million, or $1.06 a share, from $453 million, or $1.18 a share, a year earlier, due in part to lost business in the U.K.

Net sales came to $6.06 billion during the first quarter of 2011, a tad higher than the $6.05 billion from the first quarter in 2010. "I am very pleased with the company's solid performance in the quarter, particularly given the challenging budget environment," says company Chairman and CEO William H. Swanson.

"Our continued focus on cost efficiencies and program performance is reflected in the year-over-year improvements in our operating results."

While military and aerospace spending may ease from time to time, it does pick up elsewhere in the world, especially as the economy improves. Analysts like the sector for that reason, but they do keep an eye on government spending.

"We expect that gradually improving conditions should benefit these companies' credit quality. The financial performance of defense companies, on the other hand, depends more on government spending," Standard and Poor's analysts write in a research note on the sector.

"Although we believe that the immediate prospects for the defense sector remain satisfactory, rising deficits in the U.S. and other countries will likely lead to slower future growth or cuts in military spending."

Divided views

Still, some see gains ahead in the company's stock.

RBC Capital Markets upgraded the company to outperform from sector perform. Zacks Investment Research praises the company for picking up contracts across several industries. Its analysts maintain a long-term neutral recommendation.

"Raytheon is one of the best-positioned companies among the large-cap defense players due to its non-platform-centric focus, as well as its strong order bookings and order backlog," Zacks writes.


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Military spending cuts are taking their toll on Raytheon (RTN), a $25 billion defense and aerospace company. The company supplies state-of-the-art missiles, radar, sensors, and intelligence, surveillance, and reconnaissance systems to the U.S. and foreign militaries. For...
Raytheon,RTN,defense,stocks
328
2011-21-20
Wednesday, 20 Jul 2011 12:21 PM
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