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When new investors turn their attention to the aerospace and defense sector, they likely expect to find just weapons manufacturers. And in some cases, they’re right.

But when it comes to one leading defense contractor nothing could be further from the truth.

Over the past 91 years, Raytheon Co (RTN) has grown into a leader of technology and innovation, specializing in defense and aerospace systems.

Within its four main business segments, Raytheon designs, develops, manufactures and supports technological products, services and solutions for government and commercial customers in the United States and abroad.1

In fact, Raytheon has an extremely diverse portfolio of clients and products. Raytheon is one of the most international defense contractors in the U.S., with customers in 80 nations. It even has offices in 19 countries to better serve its customers in places like Australia, the United Kingdom and Canada.

Its diverse book of products keeps the business growing and profitable, even when the U.S. government is cutting its defense budget. To explain further, let’s take a closer look at Raytheon’s four main business segments.

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More on Trifecta Stocks in a moment, but first, let’s take a closer look at Raytheon’s four main business segments to see why we like it so much…

A DEFENSIVE STRATEGY

Yes, Raytheon is most known for its Missile Systems, a business segment focused on providing defensive and offensive weapons for air, land, sea and space.

“STSS-D's unique vantage point in space allows the sensor payload to see the threat early in its trajectory and provide launch

quality data sooner than nearly any other option.” -- Bill Hart, Vice President, Space Systems for Raytheon's

Space and Airborne Systems business

The Missile Systems business is also responsible for interceptors for U.S. ballistic missile defense. And this is an area that has been garnering quite a bit of attention recently.

In March, Raytheon performed the very first test ever of a Standard Missile-3 (SM-3), destroying a medium-range ballistic missile by using a remote cue from a satellite sensor system.

One of Raytheon’s most famous products is the Patriot missile defense system—a top choice for 12 nations including the U.S., Germany, Spain, Netherlands and Japan. The Patriot system helps create a comprehensive air and missile defense, enabling its customers to respond to evolving threats around the world.

In the past four years, Raytheon has dedicated more than $400 million into developing Patriot into a smarter, faster and tougher missile defense system. Chips are smaller. Parts are lighter and longer-lasting. Control panels are replaced with touch screens. And the system has a faster, more accurate guidance system.2

Raytheon created sensors for the Space Tracking and Surveillance System-Demonstrator (STSS-D) satellites. These sensors enabled the company to track a missile that was launched from a testing facility in Kauai, Hawaii. With the sensors, Raytheon was able to relay data, acquire the target and launch the SM-3 to destroy it. All before our military’s traditional tracking equipment would have acquired the target.

As you can guess, Raytheon’s SM-3s are now in demand. Already more than 135 SM-s have been delivered to the U.S. and Japan. The best part: They’re ahead of schedule and under cost.3

Now, as mentioned earlier, Raytheon may be most well-known for its missile defense systems, but this is truly just a sampling of the company’s entire business.

EYES IN THE SKIES

Raytheon’s capabilities span various technology areas: Its Integrated Defense Systems business segment focuses on radars and systems for managing computers, communications and intelligence. And it also provides air traffic management systems, sonars and electronic systems for ships.

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BIG BROTHER

On the other hand, Raytheon’s Intelligence, Information and Services business segment offers cyber security products and services, as well as surveillance systems, for government and civilian customers.

Raytheon’s Cyber C2 system, PRAETOR, is an innovative solution of detecting, assessing and protecting air traffic management systems from cyber-attacks. Air traffic control systems are vital to the safety of all passengers and pilots—whether it’s guiding a military or civilian aircraft. And Raytheon’s PRAETOR provides real-time threat assessments to protect against any form of cyber-attack.6

The company was also recently awarded a contract with the U.S. Naval Air Systems Command, for which Raytheon will create a Persistent Surveillance System Cross Domain Solution. The system will help safeguard deployed forces by providing a complete picture of potential threats.

The surveillance system will be a tiny software package that can be mounted on an aircraft. It will transfer sensor data, ISR imagery, surveillance video and situational awareness data. All of which will give our armed forces information on threats in the area, including insurgent groups or explosive devices.

The system will also protect our military by providing intelligence from hundreds of miles away. Sensors on towers and unmanned aerial vehicles will provide the data our forces need to make informed decisions in real time.7

PROTECTING THE AIR WAVES

Raytheon’s fourth and final—but most certainly not the least—business segment is Space and Airborne Systems. It provides communications and electronic warfare solutions, as well as performs research in a variety of areas, including but not limited to linguistics and quantum computing.

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For more than 70 years, Raytheon has been manufacturing radar systems that spot threats before they happen, guide weapons to their targets and bring air travelers home with safety and precision.4

For example, the Raytheon Advanced Combat Radar, or AESA, is giving fighter pilots a new edge. AESA can track multiple targets at once, see two or three times further and provide high-resolution ground-mapping. All of which has been helping fighter pilots avoid mid-air collisions and stay beyond the reach of surface-to-air weapons.5

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ANALYSIS OF THE RTN STOCK CHART

The Raytheon chart demonstrates that the stock ran into stiff overhead resistance during the first-half of 2011, after it broke out above prior resistance at $44 a share in January. That resistance was clearly defined as large traders distributed the stock just above $48 to $46 a share. Following that failed breakout, shares of RTN plunged precipitously to its August low of $36.03 a share. Following that drop, RTN then went on to form a major bottoming pattern in August to October as buyers stepped in to accumulate the stock around $36 to $37 a share.

For more than 30 years, Raytheon has been a leader in protected military satellite communications. It is the only provider of Advanced Extremely High Frequency (AEHF) satellites for the Army, Navy and Air Force.

These AEHF systems moves data five times faster than previous systems, provides increased capacity for protected voice, data and video communications, and keeps all information safe, secure and protected.8

SMASHING RESULTS

As you can see, Raytheon’s diverse businesses and technological prowess are attracting customers from around the world—government, military and civilian customers.

And that is adding nicely to the company’s bottom line.

Just consider this … Raytheon has been richly rewarded by investors over the past year for its strong earnings growth. And who can blame them?

The company’s first-quarter earnings from continuing operations jumped nearly 9%, while earnings per share increased from $1.33 to $1.49—exceeding analysts’ expectations of just $1.28 per share.9

Following the company’s better-than-expected earnings first-quarter earnings results, it boosted full-year earnings expectations from the previous $5.16 to $5.31, to $5.26 to $5.41.

And second quarter earnings did not disappoint either: Raytheon reported adjusted earnings per share of $1.64, which was a 4% boost over the second quarter 2012. Net sales also increased over last year, up 2% to $6.1 billion—once again beating analysts’ expectations of $5.81 billion.10

By continuing to post solid growth numbers even while the U.S. defense industry is downsizing in a massive way, Raytheon has proven it belongs on your buy list.

With such standout results, it’s no surprise that Raytheon’s stock has been on a tear lately: RTN shares are up 45% in the past six months.11

“Our world-class technology and innovation have positioned us wellto meet the global security needsof our customers …”

--William H. Swanson, Chairman & CEO

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Shares of RTN then started a strong uptrend as the stock crossed back above its key technical level at its 50-day moving average in October and hit a high of $43.09 a share in November 2011…just falling on the heels of an upgrade from TheStreet Quant Ratings. An excellent buy point was then triggered once RTN pulled back to its 50-day moving average in late November and held its newly formed uptrend line. That new uptrend line turned into strong support for RTN as the stock went on to make higher lows and higher highs, which is bullish technical price action.

Shares of RTN then entered a large consolidation pattern for ten months during the second-half of 2012, with the stock moving between around $51 on the downside and $58 on the upside. That consolidation pattern gave shares of RTN a chance to rest and build up energy for its next significant buy point. That entry point then triggered in May of this year when RTN broke out above the upper-end of its consolidation pattern at $58 a share with strong upside volume. One more significant buy point triggered in July when RTN broke out again above a tight consolidation pattern that saw the stock trend sideways from $64.50 to $68 a share.

Analyzing this chart even closer for 2013 will show that RTN has been in a strong uptrend, with shares consistently making higher lows and higher highs, which is bullish price action. This is exactly the type of price action you want to see in a healthy stock that’s being accumulated by large traders. Each consolidation pattern in 2013 has been met with a strong volume breakout as well, as support has held and the stock has formed a solid base to launch from. Buying into those breakouts has led to large gains since RTN has recently hit a new 52-week high at $77.93 a share.

An excellent buy point was triggered in November 2011 for RTN when it tested and held it’s 50-day moving average and it’s new uptrend line.

2A major bottoming pattern formed for shares of RTN around $36 - $37 during Aug-Oct 2011.

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So the question you are probably asking is…

…BUT IS RTN STILL A BUY?

Depends on what you mean by “buy.”

If you’re asking if it’s judged worthy by our award-winning Quant Ratings screening tool, the answer is “yes.”

In fact, Raytheon earns a stellar rating from Quant Ratings.

AN A- RATED STOCK

At Quant Ratings, we don’t just rely on press releases and news headlines to determine if a stock is going to outperform.

We rely on cold, hard data.

And right now, RTN passes all our tests with flying colors: TheStreet Quant Ratings’ proprietary quantitative algorithm ranks Raytheon a BUY.

Shares of RTN entered a consolidation pattern for ten months here with the stock moving between $58 on the upside and around $51 on the downside. This stock then broke out in May above $ 58 a share with strong upside volume, and resumed it’s uptrend.

3Anorther buy point ws triggered here when RTN broke out above $68 eith big upside volume.

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RETURN ON EQUITY

Q2 2013Q2 2012Q2 2011

RAYTHEON22.7022.6719.12

62.1039.1132.55

INDUSTRY AVERAGE13.1514.2614.04

S&P 500

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TheStreet Quant Ratings also takes into consideration major fundamental and technical factors to create a complete picture of the stock’s strengths and weaknesses. To do this, six factors—growth, total return, efficiency, price volatility, solvency and income—receive a score, as you can see in the table below.

TheStreet Quant Ratings predictive algorithm revealed the company’s strengths in several key areas. As we just discussed, the stock has risen steadily over the past year, thanks to strong earnings growth and positive developments with its products.

Other highlights from TheStreet Quant Ratings’ report on Raytheon are also worth noting …

Currently, the company has a low debt-to equity ratio of 0.55. That’s even below the industry average, implying that Raytheon is successfully managing its debt levels.

Net operating cash flow has increased by more than 83%! That vastly surpasses the industry average cash flow growth rate of about 50%.13

Return on equity has also improved. While it’s underperforming the industry’s average return on equity, Raytheon has exceeded that of the S&P 500.

Every morning—probably before your first cup of coffee—TheStreet Quant Ratings evaluates more than 4,300 stocks, uses more than 32 different major data factors and then spits out a single letter grade (from A+ to F) for every stock.

Stock price, financial position, debt levels, valuation levels, cash flow and return on equity are just some of the details taken into consideration when determining a stock’s rating. Of course, if a stock receives an A or B rating, it’s a buy. C ratings are holds, while D and E ratings are sells. And if a stock receives an F rating, the company is currently bankrupt.12

RAYTHEON RECEIVED AN A- RATING

On this factor, RTN has a growth score better than 60% of the stocks we rate.

The stock performance of this company has beaten 70% of the companies we cover.

The company has generated more income per dollar of capital than 90% of the companies we review.

The stock is less volatile than 70% of the stocks we monitor.

The company is more solvent than 90% of the companies we analyze.

The company's dividend is higher than 80% of the companies we track.

FACTOR

Growth

Total Return

Efficiency

Price Volatility

Solvency

Income

SCORE

3.5 out of 5 stars

4.0 out of 5 stars

5.0 out of 5 stars

4.0 out of 5 stars

5.0 out of 5 stars

4.5 out of 5 stars

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And if you need additional ammo, consider this: Raytheon’s stock is currently trading at a discount compared to other stocks in the defense and aerospace industry—and at a discount to the S&P 500. Raytheon has a price/earnings ratio (P/E) of 12.48, while its peers have an average 19.21 and the S&P has an average of 19.46.

So if you’d like to buy Raytheon, you have Quant Ratings’ blessing.

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1 http://www.thestreet.com/story/11924993/1/raytheon-company-rtn-todays-featured-aerospacedefense-winner.html

2 http://www.raytheon.com/newsroom/technology/rtn12_modpatriot/index.html

3 http://www.raytheon.com/newsroom/technology/rtn13_sm3_ftm20/

Quote: http://raytheon.mediaroom.com/index.php?s=43&item=2269

4 http://www.raytheon.com/capabilities/radar/

5 http://www.raytheon.com/media/fia12/aesa/

6 http://www.raytheon.com/newsroom/feature/rtn12_atmglobal/cyber/

7 http://raytheon.mediaroom.com/index.php?s=43&item=2376

8 http://www.raytheon.com/capabilities/c4i/sat_comms/index.html

9 http://www.reuters.com/article/2013/04/25/us-raytheon-results-idUSBRE93O0P320130425

10 http://raytheon.mediaroom.com/index.php?s=43&item=2388

11 Jan. 31, 2013 ($52.68) – Aug. 8, 2013 ($76.80)

12 http://secure2.thestreet.com/cap/prm.do?OID=023576

13 http://secure2.thestreet.com/cap/prm.do?OID=023577&ticker=RTN

Tables: http://secure2.thestreet.com/cap/prm.do?OID=023577&ticker=RTN

REFERENCES