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What Can Investors Expect from Raytheon Next Year?

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Mar. 19 2015, Updated 1:05 p.m. ET

Strong presence

Raytheon (RTN) is the third largest defense contractor in the US. Other companies include Lockheed Martin (LMT), Northrop Grumman (NOC), General Dynamics (GD), and Boeing (BA).

Raytheon played a major role in maintaining national security. Raytheon, Lockheed Martin, Northrop Grumman, Boeing, and General Dynamics form 1.82%, 2.88%, 1.83%, 5.28%, and 2.38% holdings of the Industrial Select Sector SPDR (XLI), respectively. More than 50% of its contracts come from the US government.

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Weak outlook

Similar to some of its competitors—like Lockheed Martin and Northrop Grumman—Raytheon also issued a weak outlook for the coming year. The company’s 2015 outlook expects the revenue to be $2.3–$22.8 billion. Its earnings outlook is even weaker. The company projected the adjusted earnings per share, or EPS, outlook to be $5.49–$5.64. This is much lower than this year’s $6.12.

Similar to this year, the company expects to have stronger cash flows. Its projected operating cash flow from operations is expected to be $2.3–$2.6 billion.

However, Raytheon plans to invest in new technologies during the year. Its research and development spending is expected to rise to about $600–$650 million in 2015 from $500 million in 2014. Apart from this, it’s also eyeing any acquisitions that would help bridge the technology gaps in order to grow its profile.

Future revenue growth

Raytheon projected that its revenue will grow after 2015. It expects to return to a small but substantial revenue growth as early as 2016. This growth
is expected to be driven by a large international order for the Patriot missile system. It’s expected to be booked in 1Q15. The deal got delayed. It was supposed to be completed late in 2014.

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