Raytheon's Focus On International, Cybersecurity Could Generate Strong Growth

Argus has raised its 2016 EPS estimate and price target on the shares of Raytheon Company RTN, saying the company's focus on its international and cybersecurity businesses could generate stronger growth over the next three to five years.

Argus, which maintains its Buy rating on the stock, increased its price target by $17 to $161, implying a P/E of 20-times projected 2017 earnings of $8.13 and a potential upside of 14 percent from the current levels.

"While this is above the industry average, we believe that Raytheon merits a premium valuation given its strong growth outlook," analysts John Eade and Casey Meyers wrote in a note.

The analysts like the business mix of the defense contractor compared to its peers. Furthermore, they like the company's emphasis on advanced missile defense, electronic warfare and cybersecurity systems.

Meanwhile, Raytheon's recent second-quarter results topped consensus expectations. The company raised its 2016 estimate for EPS from continuing operations of $7.13–$7.33, up from a prior $6.93–$7.13. This forecast implies growth of 6–9 percent from 2015. Raytheon still expects sales of $24.0 billion–$24.5 billion, up 3–5 percent from $23.2 billion in 2015.

Argus also increased its 2016 EPS estimate to $7.30 from $7.14, given strong sales, expected margin improvement at IDS and IIS, and tax benefits.

Shares have outperformed over the past quarter, rising 12 percent, while the S&P 500 has gained 4 percent. Over the past year, the shares have also outperformed, with a gain of 29.1 percent, compared to a gain of 2.3 percent for the index.

At time of writing, shares of Raytheon were down 0.28 percent to $140.81