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Raytheon (RTX) Wins $408M Deal to Aid F135 Propulsion System

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Raytheon Technologies Corp.’s (RTX - Free Report) business segment, Pratt & Whitney, recently clinched a modification contract involving the F135 propulsion system. The Naval Air Systems Command, Patuxent River, MD, has offered the award.

Details of the Deal

Valued at $408.4 million, this contract is expected to get completed by November 2022. Per the terms of the deal, Pratt & Whitney will offer annual sustainment for the F135 propulsion system, including maintenance of support equipment and unique maintenance services for conventional take-off and landing/carrier variants (F-35A and F-35C) and short take-off and landing (F-35B).

The majority of the work related to this deal will be executed in East Hartford, CT.

F-35 & Pratt and Whitney

Over the past decade, a rapid rise in global terrorism and adverse geopolitical situations across borders have boosted demand for defense products, with combat aircraft constituting a major portion of that portfolio.

It is imperative to mention that the F-35 jets built by America’s largest defense contractor, Lockheed Martin (LMT - Free Report) , enjoy a dominant position in the combat jet market. With F-35 being one of the top-notch stealth aircraft, Lockheed enjoys a consistent inflow of contracts for the production, delivery of associated spare parts and other deals concerning the F-35 jet program.

For instance, in May 2022, the company won two significant contracts, one worth $632 million and another valued $398 million, to support the F-35 program. Such contract wins by Lockheed also benefit Pratt and Whitney, which supplies the F135 engine that powers all three variants of the F-35 fighter jets.

Therefore, as the F-35 jet continues to dominate the combat aircraft market, Pratt & Whitney stands to benefit from order flow. The latest contract win is an example of that.

Growth Prospects

The production of F-35 jets is expected to continue for many years, given the U.S. government's current inventory target of 2,456 aircraft for the Air Force, Marine Corps. and Navy. Consequently, Pratt and Whitney is expected to witness more order inflows involving the F-35 program, like the latest one, which should bolster Raytheon Technologies’ top line.

Not only do Lockheed and Raytheon benefit from the solid production target for F-35 but also Northrop Grumman (NOC - Free Report) and BAE Systems Plc (BAESY - Free Report) since both of them are key partners in the F-35 program.

Northrop renders its expertise in carrier aircraft and low-observable stealth technology for the F-35 program. Being a pioneer in the development of manned combat aircraft, Northrop has a tradition of providing technological leadership in all aspects of military aviation and aircraft.

Northrop boasts a long-term earnings growth rate of 6.1%. The Zacks Consensus Estimate for NOC’s 2022 sales indicates growth of 2.7% from 2021’s reported figure.

BAE Systems’ short takeoff and vertical landing experience, and air systems sustainment support F-35’s combat capabilities. The company provides an electronic warfare suite for F-35, which includes a fully integrated radar warning, targeting support and self-protection to detect and defeat surface and airborne threats.

BAE Systems boasts a solid long-term earnings growth rate estimate of 7.2%. The Zacks Consensus Estimate for BAESY’s 2022 sales indicates growth of 35% from 2021’s reported figure.

Price Movement and Zacks Rank

Raytheon’s shares have gained 9% in the past year against the industry’s slip of 0.4%.

Zacks Investment Research
Image Source: Zacks Investment Research

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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