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TheStreet Open House

One of the Big Four Defense Stocks Is Priced to Buy

Announced on the same day (May 22, 2013) was news that it will unveil a new onboard navigation simulator at the CANSEC 2013 Defense and Security Exposition, May 29-30, in Ottawa, Canada. Raytheon says the simulator will allow operators to train with the same system they will use at sea.

Raytheon Anschuetz, a Germany-based subsidiary of Raytheon, developed the system in partnership with Canadian-based Virtual Marine Technology.

These are just two of the reasons why analysts expect RTN to experience only a slight drop in earnings-per-share (EPS) and sales growth in the current year. In the quarter ending March 31, the company reported a 1% decline in year-over-year revenue growth. At the same time, it reported an 8.9% increase in quarterly earnings growth.

For the previous three quarters RTN beat analysts' EPS estimates by an average of 15.57%. The most recent quarter (ending March 31) the company did it again, besting expected EPS by a whopping 16.4%. It appears that the company guides conservatively and aims to top expectations.

When I look closely at RTN, I like what I see. It is a fiscally conservative company that places a great deal of emphasis and money on research and development. Its range of products and services is nothing short of impressive, which helps explains its sterling 23% trailing 12-month return on equity.

The following five-year chart illustrates why its stock price has done well and why I'm still bullish on RTN.

RTN Chart RTN data by YCharts

A picture does paint a thousand words, and the picture above influences me to choose Raytheon as the defense contractor that's "still priced to buy" even though it hit a 52-week high this week.

With its $2.20-per-share annual dividend (last quarterly distribution was on April 1) the current dividend yield-to-price is a delectable 3.32%. I anticipate the next dividend payday to be July 1, and with a modest payout ratio of only 34%, RTN has some wiggle room to increase the dividend and further reward shareholders. It's current and forward (one-year) P/E ratios are only slightly greater than 11, a modest figure.

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