Raytheon is an American defense contractor, dealing with four major defense-related businesses: (1) integrated defense systems, including electronic warfare and missile defense; (2) intelligence, information and services; (3) missile systems, inclusive of precision weapons; and (4) space and airborne systems (Raytheon, 2014a). Defense is a chief national interest that sees regular spending from the federal government, as well as other individual entities like private corporations and regular people alike. As such, both industry conditions and economic outlook for defense enterprising are foreseeably good for Raytheon. The military-industrial complex is still a thriving national endeavor; Kelley (2014) notes that America still has the largest budget for defense ($682 billion) compared to any other country to date, so market demand is sure to remain relatively high even if economic fluctuations or new competition arise. Competition is also a minor threat to Raytheon, given the high regulations governing the defense industry, as well as the high barriers associated with starting up a defense business from scratch (Bitzinger, 2009). Add this to the extant far-reaching influence of the company, and smaller defense companies would be hard up directly competing with Raytheon.
Based from the company’s performance during the first quarter of 2014, Raytheon is estimated to have an EPS of $6.74 – $6.89 billion, and net sales of $22.5 - $23 billion in the remaining quarters of the year. Its projected upkeep is also relatively lower compared to its revenue; operating cash flow from continued operations is predicted to amount only to $2.3 billion - $2.5 billion (Raytheon, 2014b). Simply put, since Raytheon’s business conditions, inclusive of its industry conditions, financial conditions, and economic outlook, investors would be wise to invest on the said business. Profit margins are high because of low operations costs, and demand is stable because of solidified national political interests in defense.
Bitzinger, R.A. (2009). The modern defense industry: Political, economic, and technological issues. Santa Barbara, CA: Greenwood Publishing Group.
Kelley, M. (2014). American military dominance in one staggering chart. Business Insider. Retrieved from http://www.businessinsider.com/chart-of-defense-spending-by-country-2014-2
Raytheon. (2014a). Businesses. Retrieved from http://www.raytheon.com/ourcompany/businesses/
Raytheon. (2014b). First quarter 2014 conference call: April 24, 2014. Retrieved from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjMwNTAzfENoaWxkSUQ9LTF8VHlwZT0z&t=1