While the Pentagon’s budget cuts negatively impacted the near-term revenue for Raytheon (RTN) and its peers in the industry, the domestic market’s long-term view looks much more promising. The government will need more advanced weapons and defense systems to combat physical external threats—like cyberwarfare and terrorist activities. Recently, there has been a huge rise in these activities.
The cyberattacks have grown in frequency and severity. They’ve become a constant problem for the US government. The threats are dangerous. They can steal government secrets, copy military blueprints, and steal corporate information. All of this can impact the nation severely.
With rising incidents, like the huge data theft at JP Morgan, the government is expected to increase its defense spending soon. Raytheon appears to be a promising beneficiary. The company specializes in the field. Also, it’s on good terms with the government.
Globally, various countries are having more conflicts both internally and externally. With the rise in Islamic terrorist groups—like ISIL (Islamic State of Iraq and the Levant)—the Middle East and African regions face war-like situations. Even countries in Asia-Pacific, like China and North Korea, have seen growing conflicts and tensions.
In such cases, defense contractors are becoming vital to world stability. Raytheon also has plenty of opportunities to profit from the growing demand for defense products. The company has been successful in improving its international businesses. It formed relations with foreign military customers.
Now, the company has 29% of its total sales and 40% of the total backlog coming from international business. The company provided Patriot systems and an air defense center for Qatar, Patriot fire units for Kuwait, and GEM-T missiles for South Korea to name a few. The company expects the growth to continue and account for about one-third of its entire 2015 bookings.
Raytheon forms a 1.82% holding of the Industrial Select Sector SPDR (XLI). Other aerospace companies that form a part of XLI are United Technologies (UTX), General Dynamics (GD), and Northrop Grumman (NOC). They have 5.37%, 2.38%, and 1.83% holdings, respectively.