The Case For Raytheon To Be The Top Defense Stock

• Raytheon Company RTN shares are down 3 percent over the last six months, after crossing the $112 mark on March 20.
• RBC Capital Markets’ Robert Stallard upgraded the company from Outperform to Top Pick, while maintaining the price target at $132.
• Share gains and export wins are expected to drive above-average growth at Raytheon, Stallard believes.

Analyst Robert Stallard mentioned that Raytheon has the most “attractive balance of growth and valuation in the generally improving defense sector.” While the outlook for the U.S. Department of Defense budget continues to strengthen, the company has successfully gained share.

Apart from an increase in its internal research and development, Raytheon has also benefited from “competitive contract wins such as AMDR, 3DELRR, SDB, NORAD, and the next-gen jammer.” Stallard expects these factors to help the company return to “above average domestic growth over the next few years.”

RBC Capital Markets noted that nearly 30 percent of Raytheon’s sales are driven by exports. While export growth in the Middle East Asia is expected to remain robust, Europe too has shown concrete signs of improvement.

Raytheon is unlikely to make any further acquisitions in the near future and is thus expected to return 100 percent of its free cash flows to investors via dividends and buybacks, Stallard believes.

The analyst expects cybersecurity driven Websense, which currently accounts for only 5 percent of total revenues, to be accretive to revenue and cash growth in the near future.