Raytheon (RTX) Wins Deal to Upgrade MK15 Close-In Weapon System

Raytheon Technologies Corp.RTX recently clinched a modification contract to provide services for the upgrade of MK15 Close-In Weapon System (CIWS). The Naval Sea Systems Command, Washington Navy Yard, DC, awarded the deal.

Details of the Deal

Valued at $93.6 million, this contract includes upgrades and conversions, system overhauls and associated hardware involving the MK15 CIWS. A major portion of the work related to this deal will be carried out in Louisville, KY.

The work is scheduled to be completed by September 2026.

Significance of MK15 CIWS

The MK 15 Phalanx CIWS is a fast-reaction, rapid-fire 20-millimeter gun system that has been designed to engage anti-ship cruise missiles and fixed-wing aircraft at a short range. The Phalanx weapon system carries out functions, such as search, detection, threat evaluation, tracking, engagement and kill assessment, usually performed by multiple systems.

Rising air threats worldwide have spiked demand for CIWS in a bid to strengthen nations’ air defense systems. Consequently, Raytheon’s Phalanx MK15 CIWS weapon system has been seen installed in all U.S. Navy surface combatant ship classes and those of 24 allied nations. This highlights the strong demand that the Phalanx weapon system enjoys globally.

Prospects for Raytheon Technologies

The rising geopolitical tension and the recent turbulence between Russia and Ukraine have resulted in many countries increasing their defense budget to improve and modernize warfare capabilities. In such a scenario, spending on high-tech equipment, which is most suitable for military operations, gained momentum.

Hence, CIWS, with the capability to counter and terminate short-range incoming missiles and enemy aircraft, is likely to witness strong demand going forward. Per the report from Mordor Intelligence, the global CIWS market is anticipated to witness a CAGR of 10.8% during the 2020-2026 period.

This indicates abounding growth prospects for RTX as its Phalanx MK15 CIWS boasts features of an efficient shipboard defense weapon system against small, fast and agile surface threats. This, in turn, should bolster its revenues from Raytheon’s Missiles and Defense segment.

Opportunities for Peers

The intensifying demand for technologically advanced weapons and arsenals has also spurred demand for an effective CIWS, thereby boosting the market’s growth.

Major industry players poised to gain from the surging CIWS demand include General Dynamics GD, BAE Systems BAESY and Northrop Grumman NOC.

General Dynamics’ Ordnance and Tactical Systems has been a leading supplier of gun barrels to the U.S. Department of Defense for more than 50 years. It produces weapon systems for U.S. Navy shipboard applications and fighter aircraft, including high-speed Gatling guns for all U.S. fixed-wing military aircraft. Phalanx CIWS was designed and manufactured by General Dynamics.

General Dynamics’ long-term earnings growth rate is pegged at 9.6%. GD shares have returned 33.9% in the past year.

BAE Systems provides a wide range of munitions, explosives, gun systems and artillery systems. Its Mk 38 MGS is a low-cost, stabilized self-defense weapon system that dramatically improves ships' self-defense capabilities in all weather conditions, day or night. Additionally, its Bofors 40 Mk4 gun system, with its high rate of fire and ability to switch between optimized ammunition types, provides high survivability and tactical freedom at all levels of a conflict.

BAE Systems boasts a long-term earnings growth rate of 5.3%. Shares of BAESY have rallied 43.9% in the past year.

Northrop Grumman’s Battle Management & Missile Systems designs, develops and integrates multi-domain command and control in weapons systems. Its Counter Rocket, Artillery and Mortar represents a set of systems used to detect and destroy incoming threats.

The long-term earnings growth rate of Northrop Grumman is pegged at 6.2%. Shares of NOC have returned 41.6% to its investors in the past year.

Price Movement

In the past year, shares of Raytheon Technologies have rallied 31.2% compared with the industry’s growth of 17.8%.

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Zacks Rank

Raytheon Technologies currently carries a Zacks #4 (Sell).

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