Shares of defense contractor Raytheon (RTN) - Get Report were in defensive-mode on Wednesday following a downgrade of the stock and price-target reduction by an analyst at UBS.

Raytheon stock was down about 3%, or $5.59, at $180.25 in trading on the New York Stock Exchange after UBS analyst Myles Walton downgraded the company's stock to neutral from buy and lowered his 12-month price target to $200 from $220.

In a research note to clients, Walton said Raytheon's relative valuation "is no longer compelling" given the company already has outperformed the large-cap defense average by roughly 900 basis points this year, and that it is already below average free cash flow yield for 2019 and 2020.

Raytheon in late February revealed a miss on revenue and provided cautious guidance, based in part on uncertainty over defense spending. Analysts are currently anticipating earnings per share of $2.49 for the company's upcoming fiscal quarter.

That said, the U.S. Department of Defense recently released its fiscal 2020 budget, and spending is expected to hit $718 billion, about 6% higher than last year - something that should benefit defense contractor companies like Raytheon, according to analysts.

Separately, Raytheon announced on Tuesday that the U.S. Air Force Life Cycle Management Center and a consortium of tech firms led by Raytheon have agreed to collaborate on modernizing and simplifying the legacy Space Defense Operations Center, a 1990s-era system that tracks and monitors space debris.

Watch: Why Jim Cramer Says It's a Mistake to Buy Defense Ahead of State of the Union and Why Defense Is a Long-Term Play, According to EventShares CIO