Summary
- Markets ignored Raytheon's strong second-quarter results.
- Profit margins are set to increase.
- Price target of over $80, or over 40% in upside, discussed.
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Investors seeking value should notice the bearish trading action following Raytheon’s (RTX) earnings and revenue beat in the second quarter. Boeing’s (BA) underperformance might explain the pull on the aerospace and defence player. But Raytheon pays a dividend that yields 3.3% and trades at a forward price-to-earnings of 15.37 times.
[img src="https://static.seekingalpha.com/uploads/2020/8/3/7... alt="Raytheon
Markets are justifiably fearful of companies that have grown in size at a time when the coronavirus pandemic is gripping the world economies. AT&T (T) offers a solid 7.02% yield and is a DIY dividend income champ on my marketplace. The company said it would raise its payout ratio from 50% to 60% if needed. CEO John Stankey said, “We remain committed to our dividend, which we’ve increased by 36 consecutive years. We finished the quarter with a dividend payout ratio of about 50%. We expect to end the year with our payout ratio in the 60s, likely at the low end of that range.”
AbbVie’s (ABBV) completed its acquisition of Allergan in May 2020. It forecast “full-year adjusted earnings per share between $10.35 and $10.45 including $0.70 of accretion from the Allergan transaction which represents an annualized contribution of 11%.”
Investors may infer from these examples that Raytheon will extract higher profit margins from cost savings from the merger. It will also offset the 53% drop in commercial OEM sales with military sales, which were up 11% Y/Y in the second quarter.
