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Friday August 20, 2010
Raytheon (RTN) 'Go to' firm in cybersecurity
by Andy Obermueller, editor Government-Driven Investing  The U.S. government -- specifically the ultra-secret National Security Agency -- has decided to take steps to address cybersecurity, authorizing a classified $100 million contract to begin the program.Defense contractor Raytheon (RTN) got the business; Raytheon is the go-to company for serious cyber-security. The new government program is called "Perfect Citizen," and it's meant to monitor various public and some private computer networks that might be vulnerable to an attack. Raytheon, which has adapted to and even developed the latest technologies since its founding in 1922, has built a formidable cyber-security division, mostly through recent acquisitions. It now has an entire division dedicated to cyber security that it calls Intelligence and Information Systems. This is not an easy business unit to find out about, as the company notes that half of its revenue comes from classified agencies. 
Key customers, the company disclosed in a recent regulatory filing, include the U.S. intelligence community, the Department of Defense, the FBI and the United Kingdom's Home Office. If you want to protect your laptop, that's not such a big deal. Head to Best Buy and get a copy of McAfee's latest virus protection. Or download it yourself over the Internet. But if you're a network administrator trying to keep hackers from gaining control of a nuclear reactor, a subway, a bank or an air-traffic control tower, then the job is a lot more complicated, and the stakes are a lot higher. The government, which military leaders say is long overdue in addressing online threats, isn't messing around. It has hired the folks who make the Patriot missile to keep an eye on the nation's most sensitive computers. Raytheon is an $18.5 billion defense company with extensive government contracts. It's forecast to do nearly $30 billion in business this year and to book just shy of $5 a share in earnings. Its price-to-earnings ratio (P/E) is historically about 15, which implies a fair value for these shares of $75, or roughly +54.6% above today's valuation. I think continued strong earnings and additional government contracts -- on top of its current $37 billion backlog of orders -- will help lift this stock. It may be hard to find growth by finding new customers for Patriot missiles or other multibillion-dollar defense systems, but its cyber security business has vast and immediate growth potential. Action to Take --> Perfect Citizen sounds like something out of a James Bond movie. Fortunately, this time it's the good guys who have the upper hand in creating safety. I'll be adding shares of Raytheon to the Government-Driven Investing Portfolio and intend a multiyear hold for these shares. Learn more about this financial newsletter at Andy Obermueller's Government-Driven Investing. |
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