🛡️ Raytheon: Defense To Its Defense?

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Raytheon: Defense To Its Defense?

Raytheon Technologies lost quite some ground this past year. Can the combined power of United Techologies’ and Raytheon Company’s portfolio helps the company do better in the coming year?

Background: United Technologies was fresh from its $23B acquisition of aircraft parts supplier Rockwell Collins in 2018. Soon thereafter, United completed an all-stock merger of equals with defense contractor, The Raytheon Company, to form an aerospace and defense behemoth in April 2020. Raytheon Technologies, as the combined entity was called, commanded sales of $74B a year in products as diverse as Otis elevator, Carrier air conditioner, Pratt & Whitney jet engines, Patriot missiles, radar, and cybersecurity.

As these acquisitions were being digested, the bottom fell out of the aviation sector due to Covid. The company as part of the post-merger cost reduction exercise has focused on cutting 16,500 employees and 4,500 contractors from its Rockwell Collins and Pratt & Whitney arms – both associated with aviation. This accounted for 20% of the total commercial aerospace headcount.

These actions complemented the company’s defense portfolio in providing a sense of stability as the tide slowly turned in its favor.

What is Happening? For Q4, Raytheon Technologies posted results that bettered Wall Street expectations.

  • Revenue: $16.42B Vs. $16.3B (expected)
  • EPS: 74 cents Vs. 71 cents (expected)

But the devil is in the details. Rockwell Collins sales fell 32% Y-o-Y for the quarter. Pratt & Whitney declined 20%. For the full year, adjusted sales came in at $57.15B, well below the consensus estimate of $64.2B. Even so, with the company sitting on $9B in cash, Raytheon is committed to increasing dividends, and share repurchase program is on the cards. The company plans to return almost $20B back to shareholders in the next three years.

The defense portfolio is expected to come to the company’s defense as the Pentagon has made hypersonic missiles a key priority, and Raytheon is an acknowledged leader in the field. There’s also hope that the full approval for producing jet engines for the F-35 stealth fighter will come through soon enough.

However that may pan out, Raytheon can’t wait to turn the leaf and look ahead to 2021. With its revenue guidance for next year ($64.4B) coming in below consensus estimates ($67.05B), it seems Raytheon has its work cut out.

Market Reaction: RTX closed at $65.50 down 2.53%, and is flat before-hours.

Company Snapshot 📈

RTX $65.50 −1.70 (2.53%)

Analyst Rating (20 Ratings) BUY 75%  HOLD 25%  SELL 0%


Newsworthy 📰

Super Cycle: Welcome to the super cycle: Apple just had the best quarter in the history of the smartphone (AAPL -0.77%)

Upgrade: Twitter lifted to overweight, price target set at $65 (TWTR -2.98%)

Bleak: Tesla underwhelms Wall St with hazy 2021 delivery outlook, profit miss (SAP +4.05%)


Later Today 🕒

  • 7:00 PM IST: Initial jobless claims
  • Before Market Open: American Airlines Earnings (AA)
  • Before Market Open: Mcdonald’s Corp (MCD)
  • After Market Close: Atlassian Corporation PLC (TEAM)

Fun Fact of The Day 🌞

The first footprints on the moon will remain there for a million years


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