Defensive stock: Raytheon Technologies
Most of you might have not even hard of this company. It’s a leader in aerospace and defense and is pretty much kicking Lockheed Martin’s bu** in some cases.
Raytheon is constantly surprising its investors with earnings reports and consistently innovating more than anyone else.
Raytheon Technologies as we know it today was founded in 1922 and named American Appliances Company. First, as you may not have known or even guessed, it was a refrigerator company. Only later it started focusing more on electronics and other appliances.
One of the first innovations of the company was a technology that allowed the alternating current (AC) to be converted into direct current (DC). In any household. That was a pretty big deal at the time as people could now use a wider variety of electronics in their homes.
This technology also let consumers forget about the short-lived batteries forever. Soon, the company had changed its name to Raytheon Manufacturing Company.
Why Raytheon? Well, the company had a largely successful product, a tube-based helium rectifier, the exact one which converted AC to DC. They called it Raytheon. It was then natural for the company to change its name to the title of their first and the most successful product.
Not long after, the company had become the largest manufacturer of vacuum tubes in the entire country.
Then, the Second World War came along and obviously there had been some great opportunities to make money with. Raytheon just had to take one of these opportunities which would later become its main business.
The way the company got into defense was by starting to build radar systems for the US Military and oh boy was it profitable for this company. That is basically how Raytheon became that large defense contractor. But guess what was later built with the radar concept.
The microwave oven was invented using the same waves used for the military radar systems. It was just that those oscillating microwaves could heat something, in this case food as well.
That was a complete breakthrough both for Raytheon and the inventor of the microwave oven, Percy Spencer. 2 years after the invention of the microwave oven, in 1947, it was released for commercial use.
And that oven had extreme amounts of success. Well, that’s what we all have and use in our households, don’t we?
After that, Raytheon had been one of the first companies to start manufacturing guided missiles. Breakthrough as well, getting these beloved government contracts.
Then, an acquisition of Apelco Applied Electronics followed, bringing the company access to a larger variety of military navigation devices and their manufacturing. After the war, when the demand for defense decreased so the company got back to its roots – consumer electronics and appliances.
In the late sixties, Raytheon started massively producing its microwave ovens and became the undefeated American champion in this industry. However, the manufacturing of microwave ovens was not the only activity.
The company had also large divisions for refrigeration, air conditioning and other manufacturing. Few decades after, the world got aggressive once again and one of the most notable events for Raytheon was none other but the Persian Gulf War.
The company had its sales spike like never before.
Different government entities, organizations from offshore were buying Raytheon’s technology in large quantities. Now, the company was able to do some strategic acquisitions which would build the future and the basis of the company.
These acquisitions include E-Systems (to capitalize in electronics), Chrysler‘s whole defense division (which included multiple companies under it).
You know what happened to Hughes Aircraft Company and Hughes Electronics Corporation?
They both got bought by the Raytheon Company from General Motors. Raytheon also wanted to remain as a strong brand in the refrigeration business so it had purchased Amana Refrigeration as well.
Then, the company had started rapidly innovating so it needed some partner (or another division of its own) for help. And that innovation-centered company was none other than Serco, manufacturer of robotics.
To accelerate this innovation in robots, as well as advanced missiles, Raytheon was also interested in a research department of some sort so it had chosen BBN Technologies to do the job and be another acquisition.
In the mid 2010s, the US government was in need for a new, longer range and more accurate radar for the military. So the friends to ask for help have been Lockheed Martin and Raytheon. But which one to choose, both friends are so great in making explosive stuff!
Well, the government chose Raytheon and Lockheed did not like that So it made an appeal. The need for this radar system had then been “delayed” for three years and Raytheon was still chosen by the US government at the end.
One of the more notable things to mention about the company is that it had merged with United Technologies which had been one of the largest corporations in airline business, plane building for commercial and military aviation, making engines, airframes and much more.
After the merger the company formed was named Raytheon Technologies and is now worth around 90 billion dollars. Now let’s talk about the stock and financials of this company. First, people love it. The corporation is so generous as to pay more than 3% in dividends each year, despite this great growth it has.
Comparing the stock to, say, its main competitor, Lockheed Martin, the performance of these stocks is nearly the same. In some cases, Raytheon wins. The market-cap of Lockheed is larger by 11% as of today but that doesn’t really matter.
What matters is that Raytheon has the same large growth yet pays higher dividends by almost 0.3%. The company is absolutely great, and was the same way ever since the 1920s when it was founded.
It is also worth mentioning that both stocks, Lockheed and Raytheon had doubled in the last 5 years, from 2015 to 2020 to be more exact.
These two companies are leading the defense in the United States and beyond, have been for around a hundred years, making great contracts with the government and providing ammunition and technology for the military.
The vast majority of Raytheon’s revenue comes only from the government contracts. Today, it clearly is not a company doing refrigeration systems. But it all has to start somewhere.
Not a lot of companies would be able to build guided missiles from their very start and do that successfully. It is very interesting how a consumer appliance company had become this massive government contractor, building radars, missiles and much more.
After all, during the last century Raytheon was making practically anything that had to do with electronics.
When thinking about investing, one should definitely take a look at this company’s stock. It is defensive, that means the stock is often doing alright during though times when everybody else is falling apart. It is also ironic that many stocks which are considered to be defensive type, are actually in the defense/government contracts business.
Like LMT or RTX. Unfortunately for Raytheon, it was thrown out of the Dow Jones Industrial Average index and replaced by Honeywell International. This action had taken place in late August, 2020.
Another important thing to cover is United Technologies and how much the merger meant for Raytheon. Not a lot of people are aware of the fact that United Technologies, (firstly United Aircraft & Transport Corporation) was formed by none other than William Boeing himself with one of his great fellows Frederick Rentschler.
Today, two different companies, Boeing and Raytheon are valued at the same price of around 90 billion dollars. William Boeing had practically built these two large defense companies himself. And that’s what one man can do.
United Technologies Corporation can relate to Raytheon from a large specter because pretty quickly it had also realized that a company should not be too reliant on these government contracts. To better attract an average consumer, United A&T had to change its name to United Technologies.
“Aircraft & Transport Corporation” did not have any real relation to a citizen, a consumer who is extremely valuable to a company. So, just like Raytheon, United Technologies had been manufacturing electronics commercially, for consumers.
To conclude, it needs to be said that we can expect a lot from Rayheon Technologies in the future. The 2019 merger with United Technologies had been one of the best things that could have happened for the company.
Who knows, with so many divisions, large workforce and variety of technologies and arms produced this company may overthrow even Lockheed by a large market share some time later.
This merger was like a junction of fire and oxygen, two extremely crucial components that live together better than anything else.
After all, there is a lot of military action in the Mediterranean these days, Greece, Turkey, France and others like Libya, United Arab Emirates are conflicting about their territories and resources, as always.
So there might be some great demand for arms, missiles and overall, military technology in the near future. But who can really tell what is going to happen, when will another “Archduke of Austria-Hungary” will be assassinated?
We already have two blocks. One can’t easily predict actions of other people, notably those influential ones who are ruling countries.
Raytheon had to lay off 8000 people due to the 2020 situation. That thing, “the one that shall not be named” had impacted every single business worldwide, so what’s all the clout about. The company will rise and when it does, it will strike its competition like never before.
Still having so many bright people with great ideas for technology and more markets to approach, Raytheon will absolutely thrive. And, as mentioned earlier, no one can predict what will happen in the Mediterranean after all, even something big can set off which would make Raytheon happy.