Put Raytheon on Your Radar

03/15/2019 5:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

Nearly a century after its founding, Raytheon Company (RTN) stands as a global technology leader with 64,000 employees specializing in defense and homeland security, explains Ingrid Hendershot, money manager, value investor and editor of Hendershot Investments.

Raytheon's revolutionary innovation in the 1920s was a gas rectifier tube that transformed the radio into an affordable appliance that could be plugged into a wall socket. By the end of World War II, every U.S. patrol torpedo boat was equipped with the Raytheon radar, allowing them to see at night and to search and destroy U-boats. 

After the war, Raytheon began offering civilian products; the most famous was the microwave. Over the following decades, Raytheon introduced the first missile capable of intercepting inflight objects; helped guide the Apollo 11 and transmit the TV signals back to Earth; and developed the Patriot missile defense system.

During the past five years, Raytheon has grown revenues at a steady 4.3% annual rate. During the same period, net income and EPS have compounded at striking 7.1% and 9.9% annual rates, respectively. Raytheon’s profit margin averaged more than 9% during the previous five years, including an impressive 10.7% during 2018.

Return on equity has averaged more than 20% for the last ten years, demonstrating the company’s strong competitive advantages. Raytheon has increased their dividend for 14 consecutive years with the dividend compounding at a 9.4% annual rate during the past five years.

During 2018, Raytheon generated $2.7 billion in free cash flow and returned $2.3 billion to shareholders through dividends of $975 million and the repurchase of 6.7 million shares for $1.3 billion. Since 2007, Raytheon has repurchased shares each year reducing their share count by 35%.

The company’s strong position in missiles and radars coupled with increased defense spending under the current administration provide a solid foundation for 2019. Management expects 2019 revenue to be in the range of $28.6 billion to $29.1 billion reflecting growth of 6.5% at the mid-point.

Earnings per share are expected to grow 12% to 14% to the range of $11.40 to $11.60 on lower shares outstanding as the company anticipates repurchasing six to eight million shares during 2019. The company ended the year with $3.6 billion of cash and $4.8 billion of long-term debt on its stalwart balance sheet.

With 2019 cash flow from operations expected to be $4.0 billion, Raytheon has sufficient dry powder to execute its capital allocation strategy of targeted acquisitions, internal investments, dividend growth, share repurchases and pension contributions.

Long-term investors should place Raytheon on their radar, a high-quality global market leader with growing dividends, solid growth, durable competitive advantages and profitable operations. Buy.

Subscribe to Hendershot Investments here…

Related Articles on INDUSTRIALS