Earnings Analysis: Raytheon (RTN)

On Thursday, Raytheon reported their fourth quarter 2018 earnings results.  While I am spending some time looking into this overall, this recap will not be as exhaustive as most of my efforts because I'm in progress of liquidating my holding.  This stock is currently less than 3% of my overall portfolio and is generally a non-factor - especially since I am looking to it for additional funds.  The results were somewhat mixed, as revenues missed expectations of $7.45B by $9M, coming in at $7.36B.  Earnings, on the other hand, were able to beat expectations of $2.89 by coming in at $2.93.  These results and the general explanations that go with them probably would've been given a pass, considering how hard the stock was sold off into the end of the year and what the stock was priced at a quarter ago.  However, the guidance provided really put a damper on the stock as they failed to significantly miss already subdued expectations.

Worries coming into the quarter have been that the Democrats taking the house would put a damper on defense spending and made the outlook less certain.  Sales to the US have the strongest margin rates and expectations here were guided down rather significantly.  Global orders were guided up, but again, they have lower margins.  It was also sounding like they're reaching a peak total addressable market too - which is certainly a little disconcerting.  There's a part of me that says that this low guidance was a total reset by the management team, but the fact is that the market already reset expectations, so this feels overly pessimistic and just detrimental to the stock overall.  The entire defense sector is suffering and after the run up from the December lows, I find it hard to see this stock running much higher in the near future.  As such, I'm downgrading Raytheon to a 3.  As I said, I'm looking to sell and it will likely be on whatever strength I can find in the near-term.  I would've loved to sell yesterday, but was unable to do so.  So now I'm looking for an opportunity on a strong market day this next week.  As such, I will not provide any price targets for the stock.

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.

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