Many aerospace and defense stocks have been taking damage in recent weeks thanks to the broad market slowdown and concerns over demand from developed markets like Europe. However, this is making for some great buying opportunities right now, such as with the case of Raytheon ( (RTN – Analyst Report).
Raytheon in Focus
Raytheon is a Massachusetts-based defense company specializing in broad defense systems, intelligence, missile systems, and space and airborne systems. The stock has been a strong performer when looking over the past two years and especially at the tail end of 2013 but it has run into some roadblocks as of late. In fact, shares of RTN are down nearly 10% in the past three months, easily underperforming the S&P 500 in the time frame.
However, this recent slide may actually be great news for investors as it could allow them to get in at a more reasonable price for what is otherwise a solid company. Not only does RTN have a great dividend approaching 3%, but it has impressive earnings estimate metrics which suggest that this downturn will likely be a temporary setback for this large cap stock.
Earnings estimates for RTN have been rising as of late with the consensus estimate for the full year going from $6.44/share 90 days ago to $6.82/share today. We have actually see the more recent estimates go even higher as the most accurate estimate comes in at $6.90/share, which can help to suggest good news at earnings season.
And best of all, RTN has a very impressive track record when it comes to beating estimates including a five percent average beat over the last four quarters. Raytheon has also missed just one time in the past four years so it has a great long term performance on this metric too.For these reasons, it shouldn’t be surprising to note that RTN currently has a Zacks Rank #1 (Strong Buy) and that we are looking for more outperformance ahead.
But the story becomes even more impressive when you throw in a great dividend and a ‘B’ Style Score for Value. The company actually sees a PE that is less than the industry average, cash flow per share nearly double the industry, and an earnings yield higher than the aerospace and defense equipment industry too. When you combine all of these factors and note that RTN is the only strong buy in the industry right now, RTN becomes a truly compelling choice.
Buying great companies on a dip is definitely a sound investing strategy and this is the case for Raytheon right now. Shares are depressed relative to the S&P 500 but fundamentals for this defense company remain strong.
Add in impressive earnings estimates and a solid track record at earnings season and it is easy to see why RTN is a strong buy. So if you are a value investor, definitely take a closer look at this defense company before it bounces back after its upcoming earnings report which is due out in a few short weeks.
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