Tuesday, 5 February 2013

A Look at Raytheon


I was having a look at Lockheed Martin as a possible holding, and Raytheon came up on my radar screen. Just like LMT, RTN shares have also come down about 10%.

So let’s have a look at the numbers…

Average Dividend Yield Analysis*

RTN-N
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2003
$33.97
$24.31
$0.20
$0.20
$0.20
$0.20
$0.80
3.29%
2.36%
2004
$41.89
$29.28
$0.20
$0.20
$0.20
$0.20
$0.80
2.73%
1.91%
2005
$40.57
$35.96
$0.20
$0.22
$0.22
$0.22
$0.86
2.39%
2.12%
2006
$54.17
$39.43
$0.22
$0.24
$0.24
$0.24
$0.94
2.38%
1.74%
2007
$65.94
$50.96
$0.24
$0.255
$0.255
$0.255
$1.01
1.97%
1.52%
2008
$67.49
$41.81
$0.255
$0.28
$0.28
$0.28
$1.10
2.62%
1.62%
2009
$53.84
$33.20
$0.28
$0.31
$0.31
$0.31
$1.21
3.64%
2.25%
2010
$60.10
$42.65
$0.31
$0.375
$0.375
$0.375
$1.44
3.36%
2.39%
2011
$53.12
$38.35
$0.375
$0.43
$0.43
$0.43
$1.67
4.34%
3.13%
2012
$59.34
$47.50
$0.43
$0.50
$0.50
$0.50
$1.93
4.06%
3.25%
2013


$0.50
$0.50
$0.50
$0.50
$2.00


Stock prices and dividends are per calendar year.
10y ave
3.08%
2.23%
Dividends are recorded in the quarter they were paid.
5y ave
3.61%
2.53%







3y ave
3.92%
2.92%







5y
$55.45
$79.09







3y
$50.98
$70.38






Super Cheap
$46.07


The table shows the 3 year average dividend yield to be 3.92% ((3.36% + 4.34% + 4.06%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $2.00, one would have to pay $50.98 for a 3.92% dividend yield.

Buying the stock at its low in 2011 would have earned you an initial yield of 4.36%. Using the current annual dividend, that corresponds to a stock price of $46.07 today (see “super cheap” price in the table above).

Graham Price

RTN’s 2010, 2011 and 2012 EPS were $4.79, $5.28 and $5.65. 3Y Ave EPS = $5.24.
RTN’s BV is $24.34 (another source says BV = $27.47).
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $53.57

Cyclically Adjusted Price to Earnings Ratio

RTN’s 10Y Ave EPS = $3.52
CAPE = Stock Price / 10Y Ave EPS = $53.51 / $3.52 = 15.2
A CAPE below 20 is good.

Conclusion

RTN increased EPS from $1.29 in 2003 to $5.65 in 2012. That’s an increase of 4.4 times over 9 years. Pretty good, although I don’t think EPS will increase as fast over the next decade. 2013 EPS is estimated at $5.30, a slight decline from 2012. 2014 EPS is estimated at $5.65, identical to 2012. No growth in EPS over the next two years is a turn off.

LMT’s 2013 and 2014 EPS are estimated at $8.80 and $8.90, respectively. 2012 EPS were $8.36. The difference isn’t much, but EPS is heading in the right direction; estimates can be wrong though.

Based Graham price and CAPE, RTN appears undervalued. I would consider buying RTN somewhere around $46-$48.


*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.


2 comments:

  1. Your buy price is close to mine. I like this name under $50. However, there is a huge question mark with defense spending cuts. I heard the same story in 2011, but decided to buy it anyways. That is a decision I do not regret! RTN is due for a dividend increase next month, a 7% boost would keep me happy.

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    1. Sorry for the late reply; I was away on business. I was looking at this week's news this morning. Lots of action and RTN is slightly up! There aren't many deals to be had these days. VOD and INTC are down, but I already own enough of them. I hope you get a good dividend hike with RTN.

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