Morningstar | Raytheon Grows 1Q Top Line by 7% and EPS by 26%; Our Fair Value Estimate Remains Under Review
Wide-moat Raytheon's first-quarter 2019 results show that the firm’s backlog, international exposure, and products position it for some of the fastest growth in the defense industry. However, it's likely Raytheon faces operating margin headwinds as it ramps up development programs. Our fair value estimate remains under review as we transition coverage to a new analyst.Raytheon’s net sales increased 7% year over year, reaching $6.7 billion. The Intelligence, Information, and Services segment grew its top line at a particularly strong 12% clip due to solid classified cyber and space programs. Consolidated operating margins declined a modest 10 basis points year over year to 16.5%, with margin improvement in Intelligence, Information, and Services and Space and Airborne Systems offset by lower profitability in Integrated Defense Systems and Missile Systems.
The firm grew EPS from continuing operations to $2.77, up 26% versus the prior-year period’s $2.20; operations contributed $0.08 of growth and other items added $0.49. Management stuck with its 2019 guidance of midpoints of $11.50 and $4.0 billion for EPS and operating cash flow, respectively. The backlog increased $3 billion year over year to $41 billion but declined slightly sequentially from the $42 billion level at the end of 2018. Around 38% of Raytheon’s backlog sits with international customers.
Going into 2019, it appeared Raytheon, which has one of the cleanest balance sheets in the U.S. defense industry, might repurchase shares more aggressively. The company didn’t disappoint, taking 2.8 million shares off the market for $500 million this quarter compared with spending $1.3 billion last year (6.7 million shares). Lastly, Forcepoint, the company’s stand-alone cyber security subsidiary, continues to be a thorn in management’s side, with revenue growing 12% and operating income declining from a $7 million loss in the year-ago period to a $9 million loss in the first quarter of 2019.
Raytheon, together with its subsidiaries, is a technology company, focused on defense and other government markets. The company has five segments: Integrated Defense Systems, which is engaged in integrated air and missile defense; large land- and sea-based radar solutions; command, control, communications, computers, cyber and intelligence solutions; Intelligence, Information and Services, which provides technical services to intelligence, defense, federal and commercial customers; Missile Systems, which produces missile and combat systems; Space and Airborne Systems, which develops integrated sensor and communication systems for missions; and Forcepoint, which develops cybersecurity products.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.