Raytheon Technologies Corporation
Raytheon Technologies Corporation is an American multinational conglomerate headquartered in Waltham, Massachusetts. The company is one of the largest aerospace, intelligence services providers, and defense manufacturers in the world by revenue and market capitalization. It researches, develops, and manufactures advanced technology products in the aerospace and defense industry, including aircraft engines, avionics, aerostructures, cybersecurity, missiles, air defense systems, and drones. The company is also a large military contractor, getting a significant portion of its revenue from the U.S. government.
Investment Thesis: WAlthough currently outperforming the market, Raytheon offers the club a relatively risk-free diversification option as it climbs its way back to pre-COVID levels. Their defense side has not suffered much through the pandemic, but their commercial side (which makes up 2⁄3 of
their business) has suffered tremendously, resulting in the current divergence between price and real
Although the commercial aerospace industry took a large hit last year, but Raytheon’s defense industry exposure contributes enough earnings and free cash flow to sustain the company as the aerospace industry recovers over the next few years, creating multiple opportunities for the company’s growth
Dividend currently yields 2.9%, and with room for future growth as the aerospace industry recovers, it’s a comfortable, reliable investment that will most likely increase in value as time goes on
While Raytheon would typically be regarded as a value stock due to its current performance in the market and general stability, the stock does have room to grow as the company has recently secured a lot of new defense contracts: In February, Raytheon technologies was awarded 14 contracts valued at $644.4 million, with 70% of the contract value ($451.8 million) being given at time of the award. This is a significant improvement from the amount of upfront funds they received last year, $425.1 million. This amount doesn’t include the recent $146 million Surveillance Radar contract for the United States Navy Raytheon just announced last Tuesday.
It is unclear how long the aerospace industry will take to recover, as many countries are going back into lockdowns and banning international flights due to new Covid variants. However, once vaccines are distributed to the point where a majority of the general population is vaccinated, we will most likely see a growth in the commercial aerospace industry.
As of right now, many countries in Europe are reintroducing lockdowns as new variants of Covid-19 are spreading around in combination with a third wave of Covid-19 cases. Additionally, there are a lot of countries that have kept in place international travel bans as cases surge worldwide, greatly impacting the tourism and aerospace industry, and until the pandemic is held at bay it is unlikely to see a reversal of these bans.
Raytheon technologies is currently outperforming the market, but the stock can still grow as the company continues to expand
Future business growth is expected to grow about 9.78% over the next few years. While the company’s stock value in regards to its competitors and the market has been overvalued a bit, the company’s growth along with thee eventual recovery of the commercial aerospace industry can outweigh the overvaluation and create a lucrative investment opportunity.
Buy and hold until it recovers to pre-COVID levels. Our DCF showed it has even more room for growth beyond pre-COVID levels, but since we are recommending it as a value stock, this is not necessary.