Reviewing Raytheon (RTN) and Arconic (ARNC)

Raytheon (NYSE: RTN) and Arconic (NASDAQ:ARNC) are both large-cap aerospace & defense – nec companies, but which is the better stock? We will compare the two companies based on the strength of their valuation, earnings, analyst recommendations, institutional ownership, dividends, profitability and risk.

Institutional & Insider Ownership

74.2% of Raytheon shares are owned by institutional investors. 0.2% of Raytheon shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Profitability

This table compares Raytheon and Arconic’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Raytheon 8.77% 20.98% 7.34%
Arconic 3.68% 7.07% 2.49%

Valuation and Earnings

This table compares Raytheon and Arconic’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Raytheon $24.07 billion 2.22 $2.21 billion $7.43 24.83
Arconic N/A N/A N/A ($2.14) -10.86

Raytheon has higher revenue and earnings than Arconic. Arconic is trading at a lower price-to-earnings ratio than Raytheon, indicating that it is currently the more affordable of the two stocks.

Dividends

Raytheon pays an annual dividend of $3.19 per share and has a dividend yield of 1.7%. Arconic pays an annual dividend of $0.24 per share and has a dividend yield of 1.0%. Raytheon pays out 42.9% of its earnings in the form of a dividend. Arconic pays out -11.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Raytheon has increased its dividend for 12 consecutive years. Raytheon is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility and Risk

Raytheon has a beta of 0.57, meaning that its stock price is 43% less volatile than the S&P 500. Comparatively, Arconic has a beta of 0.88, meaning that its stock price is 12% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings and recommmendations for Raytheon and Arconic, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Raytheon 0 2 13 0 2.87
Arconic 0 2 5 0 2.71

Raytheon currently has a consensus target price of $199.67, indicating a potential upside of 8.24%. Arconic has a consensus target price of $28.57, indicating a potential upside of 22.94%. Given Arconic’s higher possible upside, analysts plainly believe Arconic is more favorable than Raytheon.

Summary

Raytheon beats Arconic on 11 of the 14 factors compared between the two stocks.

Raytheon Company Profile

Raytheon Company is a technology company, which specializes in defense and other government markets. The Company develops integrated products, services and solutions in various markets, including sensing; effects; command, control, communications, computers, cyber and intelligence; mission support, and cybersecurity. The Company operates through five segments: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS), and Forcepoint. The IDS segment develops and produces sensors and mission systems. The IIS segment provides a range of technical and professional services to intelligence, defense, federal and commercial customers. The MS segment is a developer, integrator and producer of missile and combat systems. The SAS segment is engaged in the design, development and manufacture of integrated sensor and communication systems for missions. The Forcepoint segment develops cybersecurity products.

Arconic Company Profile

Arconic Inc., formerly Alcoa Inc., is engaged in lightweight metals engineering and manufacturing. The Company operates through three segments: Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions. Its multi-material products, which include aluminum, titanium and nickel, are used around the world in markets, such as aerospace, automotive, commercial transportation and packaging. The Global Rolled Products segment produces a range of aluminum sheet and plate products for the aerospace, automotive, commercial transportation, brazing and industrial markets. The Engineered Products and Solutions segment develops and manufactures products for the aerospace (commercial and defense), commercial transportation and power generation end markets. The Transportation and Construction Solutions segment produces products that are used in the non-residential building and construction and commercial transportation end markets.

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