Why Raytheon Company (RTN)’s Stock Is Worth Owning

Looking at the competition, only Lockheed Martin has a higher current yield, but its debt-to-equity ratio is also substantially higher, making it tougher to consider. On the flip side, Rockwell Collins has a more reasonable debt load, but its lower yield, higher price-to-earnings ratio, and faster expected growth rate suggests that the risks from sequestration haven’t been fully baked into its stock yet.

Purely from a valuation perspective, Northrop Grumman looks like the most reasonable alternative to Raytheon, but analysts now expect the former to shrink over the next five years. Given that the iPIG portfolio looks to buy companies with rising dividends, and since a sustainable, rising dividend requires rising earnings, that makes Northrup Grumman one to watch rather than to own.

Put it all together, it means that among its peers Raytheon looks like the best overall fit for this portfolio.

What are the risks?
Of course, no investment is without risk. In Raytheon’s case, one of the biggest risks is the fact that its defense industry is tied to the ever-political appropriations process. As the potential sequester shows, funding from that large and incredibly important customer that is the U.S. Department of Defense is never guaranteed.

The article Why Raytheon’s Stock Is Worth Owning originally appeared on Fool.com and is written by Chuck Saletta.

Chuck Saletta owns shares of United Technologies. The Motley Fool owns shares of Lockheed Martin, Northrop Grumman, and Raytheon Company.

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