Intrinsic value of Raytheon - RTN

Previous Close

$176.90

  Intrinsic Value

$237.30

stock screener

  Rating & Target

buy

+34%

  Value-price divergence*

-19%

Previous close

$176.90

 
Intrinsic value

$237.30

 
Up/down potential

+34%

 
Rating

buy

 
Value-price divergence*

-19%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of RTN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 51.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.54
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
Revenue, $m
  24,069
  25,056
  26,106
  27,221
  28,403
  29,656
  30,981
  32,382
  33,861
  35,423
  37,071
  38,808
  40,639
  42,567
  44,598
  46,736
  48,987
  51,354
  53,845
  56,464
  59,219
  62,115
  65,160
  68,360
  71,724
  75,258
  78,972
  82,875
  86,976
  91,283
  95,809
Variable operating expenses, $m
 
  18,080
  18,775
  19,514
  20,298
  21,127
  22,005
  22,934
  23,914
  24,949
  26,040
  25,713
  26,926
  28,203
  29,549
  30,966
  32,457
  34,025
  35,676
  37,411
  39,236
  41,155
  43,172
  45,293
  47,521
  49,863
  52,324
  54,910
  57,627
  60,481
  63,479
Fixed operating expenses, $m
 
  3,579
  3,669
  3,761
  3,855
  3,951
  4,050
  4,151
  4,255
  4,361
  4,470
  4,582
  4,696
  4,814
  4,934
  5,057
  5,184
  5,313
  5,446
  5,582
  5,722
  5,865
  6,012
  6,162
  6,316
  6,474
  6,636
  6,802
  6,972
  7,146
  7,325
Total operating expenses, $m
  20,829
  21,659
  22,444
  23,275
  24,153
  25,078
  26,055
  27,085
  28,169
  29,310
  30,510
  30,295
  31,622
  33,017
  34,483
  36,023
  37,641
  39,338
  41,122
  42,993
  44,958
  47,020
  49,184
  51,455
  53,837
  56,337
  58,960
  61,712
  64,599
  67,627
  70,804
Operating income, $m
  3,240
  3,397
  3,662
  3,946
  4,251
  4,577
  4,926
  5,297
  5,693
  6,113
  6,560
  8,514
  9,017
  9,550
  10,115
  10,713
  11,346
  12,016
  12,723
  13,471
  14,261
  15,095
  15,976
  16,905
  17,886
  18,921
  20,013
  21,164
  22,377
  23,657
  25,005
EBITDA, $m
  3,755
  4,981
  5,250
  5,539
  5,849
  6,181
  6,535
  6,912
  7,314
  7,741
  8,195
  8,677
  9,187
  9,729
  10,302
  10,910
  11,552
  12,231
  12,949
  13,708
  14,510
  15,356
  16,249
  17,193
  18,188
  19,237
  20,344
  21,512
  22,743
  24,040
  25,407
Interest expense (income), $m
  231
  229
  265
  302
  342
  384
  429
  476
  526
  579
  635
  694
  756
  821
  890
  963
  1,039
  1,120
  1,204
  1,293
  1,387
  1,485
  1,588
  1,697
  1,811
  1,932
  2,058
  2,190
  2,330
  2,476
  2,630
Earnings before tax, $m
  3,030
  3,167
  3,397
  3,644
  3,909
  4,193
  4,497
  4,821
  5,166
  5,534
  5,925
  7,820
  8,261
  8,729
  9,225
  9,750
  10,307
  10,896
  11,519
  12,178
  12,874
  13,610
  14,387
  15,208
  16,075
  16,990
  17,955
  18,973
  20,047
  21,180
  22,375
Tax expense, $m
  857
  855
  917
  984
  1,055
  1,132
  1,214
  1,302
  1,395
  1,494
  1,600
  2,111
  2,230
  2,357
  2,491
  2,633
  2,783
  2,942
  3,110
  3,288
  3,476
  3,675
  3,885
  4,106
  4,340
  4,587
  4,848
  5,123
  5,413
  5,719
  6,041
Net income, $m
  2,211
  2,312
  2,480
  2,660
  2,853
  3,061
  3,282
  3,519
  3,771
  4,040
  4,325
  5,708
  6,030
  6,372
  6,734
  7,118
  7,524
  7,954
  8,409
  8,890
  9,398
  9,935
  10,503
  11,102
  11,735
  12,402
  13,107
  13,850
  14,635
  15,462
  16,334

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,403
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  30,052
  27,747
  28,910
  30,145
  31,454
  32,841
  34,309
  35,860
  37,499
  39,228
  41,053
  42,977
  45,004
  47,140
  49,389
  51,757
  54,249
  56,871
  59,629
  62,530
  65,580
  68,788
  72,159
  75,703
  79,428
  83,342
  87,456
  91,778
  96,318
  101,089
  106,101
Adjusted assets (=assets-cash), $m
  26,649
  27,747
  28,910
  30,145
  31,454
  32,841
  34,309
  35,860
  37,499
  39,228
  41,053
  42,977
  45,004
  47,140
  49,389
  51,757
  54,249
  56,871
  59,629
  62,530
  65,580
  68,788
  72,159
  75,703
  79,428
  83,342
  87,456
  91,778
  96,318
  101,089
  106,101
Revenue / Adjusted assets
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
Average production assets, $m
  3,027
  3,157
  3,289
  3,430
  3,579
  3,737
  3,904
  4,080
  4,267
  4,463
  4,671
  4,890
  5,120
  5,363
  5,619
  5,889
  6,172
  6,471
  6,784
  7,115
  7,462
  7,827
  8,210
  8,613
  9,037
  9,483
  9,951
  10,442
  10,959
  11,502
  12,072
Working capital, $m
  4,251
  877
  914
  953
  994
  1,038
  1,084
  1,133
  1,185
  1,240
  1,297
  1,358
  1,422
  1,490
  1,561
  1,636
  1,715
  1,797
  1,885
  1,976
  2,073
  2,174
  2,281
  2,393
  2,510
  2,634
  2,764
  2,901
  3,044
  3,195
  3,353
Total debt, $m
  5,335
  6,159
  7,031
  7,958
  8,940
  9,980
  11,080
  12,244
  13,473
  14,770
  16,139
  17,582
  19,102
  20,704
  22,391
  24,167
  26,036
  28,002
  30,071
  32,246
  34,534
  36,940
  39,468
  42,126
  44,920
  47,856
  50,941
  54,182
  57,588
  61,166
  64,924
Total liabilities, $m
  19,986
  20,810
  21,682
  22,609
  23,591
  24,631
  25,731
  26,895
  28,124
  29,421
  30,790
  32,233
  33,753
  35,355
  37,042
  38,818
  40,687
  42,653
  44,722
  46,897
  49,185
  51,591
  54,119
  56,777
  59,571
  62,507
  65,592
  68,833
  72,239
  75,817
  79,575
Total equity, $m
  10,066
  6,937
  7,227
  7,536
  7,864
  8,210
  8,577
  8,965
  9,375
  9,807
  10,263
  10,744
  11,251
  11,785
  12,347
  12,939
  13,562
  14,218
  14,907
  15,632
  16,395
  17,197
  18,040
  18,926
  19,857
  20,836
  21,864
  22,944
  24,080
  25,272
  26,525
Total liabilities and equity, $m
  30,052
  27,747
  28,909
  30,145
  31,455
  32,841
  34,308
  35,860
  37,499
  39,228
  41,053
  42,977
  45,004
  47,140
  49,389
  51,757
  54,249
  56,871
  59,629
  62,529
  65,580
  68,788
  72,159
  75,703
  79,428
  83,343
  87,456
  91,777
  96,319
  101,089
  106,100
Debt-to-equity ratio
  0.530
  0.890
  0.970
  1.060
  1.140
  1.220
  1.290
  1.370
  1.440
  1.510
  1.570
  1.640
  1.700
  1.760
  1.810
  1.870
  1.920
  1.970
  2.020
  2.060
  2.110
  2.150
  2.190
  2.230
  2.260
  2.300
  2.330
  2.360
  2.390
  2.420
  2.450
Adjusted equity ratio
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,211
  2,312
  2,480
  2,660
  2,853
  3,061
  3,282
  3,519
  3,771
  4,040
  4,325
  5,708
  6,030
  6,372
  6,734
  7,118
  7,524
  7,954
  8,409
  8,890
  9,398
  9,935
  10,503
  11,102
  11,735
  12,402
  13,107
  13,850
  14,635
  15,462
  16,334
Depreciation, amort., depletion, $m
  515
  1,584
  1,588
  1,593
  1,598
  1,603
  1,609
  1,615
  1,621
  1,628
  1,634
  163
  171
  179
  187
  196
  206
  216
  226
  237
  249
  261
  274
  287
  301
  316
  332
  348
  365
  383
  402
Funds from operations, $m
  2,874
  3,896
  4,068
  4,253
  4,452
  4,664
  4,891
  5,134
  5,392
  5,667
  5,960
  5,871
  6,201
  6,551
  6,921
  7,314
  7,730
  8,170
  8,635
  9,127
  9,647
  10,196
  10,776
  11,389
  12,036
  12,718
  13,439
  14,199
  15,000
  15,845
  16,736
Change in working capital, $m
  22
  35
  37
  39
  41
  44
  46
  49
  52
  55
  58
  61
  64
  68
  71
  75
  79
  83
  87
  92
  96
  101
  107
  112
  118
  124
  130
  137
  144
  151
  158
Cash from operations, $m
  2,852
  3,862
  4,031
  4,214
  4,410
  4,620
  4,845
  5,085
  5,341
  5,613
  5,902
  5,810
  6,137
  6,483
  6,850
  7,239
  7,651
  8,087
  8,548
  9,035
  9,551
  10,095
  10,670
  11,277
  11,918
  12,595
  13,309
  14,062
  14,856
  15,694
  16,578
Maintenance CAPEX, $m
  0
  -101
  -105
  -110
  -114
  -119
  -125
  -130
  -136
  -142
  -149
  -156
  -163
  -171
  -179
  -187
  -196
  -206
  -216
  -226
  -237
  -249
  -261
  -274
  -287
  -301
  -316
  -332
  -348
  -365
  -383
New CAPEX, $m
  -625
  -130
  -132
  -140
  -149
  -158
  -167
  -177
  -186
  -197
  -208
  -219
  -231
  -243
  -256
  -269
  -284
  -298
  -314
  -330
  -347
  -365
  -384
  -403
  -424
  -445
  -468
  -492
  -517
  -543
  -570
Cash from investing activities, $m
  53
  -231
  -237
  -250
  -263
  -277
  -292
  -307
  -322
  -339
  -357
  -375
  -394
  -414
  -435
  -456
  -480
  -504
  -530
  -556
  -584
  -614
  -645
  -677
  -711
  -746
  -784
  -824
  -865
  -908
  -953
Free cash flow, $m
  2,905
  3,631
  3,794
  3,964
  4,147
  4,343
  4,553
  4,778
  5,018
  5,274
  5,546
  5,436
  5,743
  6,070
  6,416
  6,783
  7,171
  7,583
  8,018
  8,479
  8,966
  9,481
  10,025
  10,600
  11,207
  11,848
  12,525
  13,239
  13,992
  14,786
  15,624
Issuance/(repayment) of debt, $m
  0
  824
  872
  926
  982
  1,040
  1,101
  1,164
  1,229
  1,297
  1,368
  1,443
  1,521
  1,602
  1,687
  1,776
  1,869
  1,966
  2,069
  2,176
  2,288
  2,405
  2,529
  2,658
  2,794
  2,936
  3,085
  3,241
  3,406
  3,578
  3,759
Issuance/(repurchase) of shares, $m
  -996
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,080
  824
  872
  926
  982
  1,040
  1,101
  1,164
  1,229
  1,297
  1,368
  1,443
  1,521
  1,602
  1,687
  1,776
  1,869
  1,966
  2,069
  2,176
  2,288
  2,405
  2,529
  2,658
  2,794
  2,936
  3,085
  3,241
  3,406
  3,578
  3,759
Total cash flow (excl. dividends), $m
  1,825
  4,455
  4,666
  4,890
  5,129
  5,383
  5,654
  5,942
  6,247
  6,571
  6,914
  6,879
  7,264
  7,671
  8,103
  8,558
  9,040
  9,549
  10,087
  10,655
  11,254
  11,887
  12,554
  13,258
  14,001
  14,784
  15,610
  16,480
  17,397
  18,364
  19,383
Retained Cash Flow (-), $m
  62
  -274
  -291
  -309
  -327
  -347
  -367
  -388
  -410
  -432
  -456
  -481
  -507
  -534
  -562
  -592
  -623
  -655
  -690
  -725
  -763
  -802
  -843
  -886
  -931
  -979
  -1,028
  -1,080
  -1,135
  -1,193
  -1,253
Prev. year cash balance distribution, $m
 
  3,403
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  7,584
  4,375
  4,581
  4,802
  5,037
  5,287
  5,554
  5,837
  6,139
  6,458
  6,398
  6,757
  7,138
  7,540
  7,966
  8,417
  8,894
  9,397
  9,930
  10,492
  11,085
  11,711
  12,372
  13,070
  13,805
  14,581
  15,399
  16,262
  17,171
  18,130
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  7,272
  4,005
  3,987
  3,954
  3,904
  3,837
  3,752
  3,649
  3,526
  3,386
  3,038
  2,883
  2,714
  2,531
  2,339
  2,139
  1,935
  1,731
  1,529
  1,333
  1,147
  972
  811
  666
  537
  425
  331
  252
  187
  137
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Raytheon Company develops technologically integrated products, services, and solutions worldwide. It 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 provides integrated air and missile defense; land and sea-based radar solutions; command, control, communications, computers, cyber, and intelligence solutions; and naval combat and ship electronic systems. The IIS segment offers a range of technical and professional services, such as intelligence, surveillance and reconnaissance, navigation, DoD space and weather, cybersecurity, analytics, training, logistics, mission support, engineering, and automation and sustainment solutions; and air traffic management systems. The MS segment develops and supports a range of weapon systems, including missiles, smart munitions, close-in weapon systems, projectiles, kinetic kill vehicles, directed energy effectors, and combat sensor solutions. The SAS segment provides electro-optical/infrared sensors, airborne radars for surveillance and fire control applications, lasers, precision guidance systems, signals intelligence systems, processors, electronic warfare systems, and communication and space-qualified systems for civil and military applications. The Forcepoint segment develops cyber security products comprising insider threat solutions, data loss prevention, firewall technology, cross domain transfer, and cloud and on premise Web and email security products. The company serves the U.S. Department of Defense, the U.S. Intelligence Community, the U.S. Armed Forces, the Federal Aviation Administration, the National Oceanic and Atmospheric Administration, Department of Homeland Security, the National Aeronautics and Space Administration, and other international customers. Raytheon Company was founded in 1922 and is based in Waltham, Massachusetts.

FINANCIAL RATIOS  of  Raytheon (RTN)

Valuation Ratios
P/E Ratio 23.4
Price to Sales 2.2
Price to Book 5.1
Price to Tangible Book
Price to Cash Flow 18.2
Price to Free Cash Flow 23.3
Growth Rates
Sales Growth Rate 3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 36.8%
Cap. Spend. - 3 Yr. Gr. Rate 13.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 53%
Total Debt to Equity 53%
Interest Coverage 14
Management Effectiveness
Return On Assets 8%
Ret/ On Assets - 3 Yr. Avg. 8.3%
Return On Total Capital 14.3%
Ret/ On T. Cap. - 3 Yr. Avg. 14.2%
Return On Equity 21.9%
Return On Equity - 3 Yr. Avg. 21.6%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 25.4%
Gross Margin - 3 Yr. Avg. 24.7%
EBITDA Margin 15.7%
EBITDA Margin - 3 Yr. Avg. 15.6%
Operating Margin 13.5%
Oper. Margin - 3 Yr. Avg. 13.4%
Pre-Tax Margin 12.6%
Pre-Tax Margin - 3 Yr. Avg. 12.5%
Net Profit Margin 9.2%
Net Profit Margin - 3 Yr. Avg. 9.3%
Effective Tax Rate 28.3%
Eff/ Tax Rate - 3 Yr. Avg. 27%
Payout Ratio 38.4%

RTN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RTN stock intrinsic value calculation we used $24069 million for the last fiscal year's total revenue generated by Raytheon. The default revenue input number comes from 2016 income statement of Raytheon. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our RTN stock valuation model: a) initial revenue growth rate of 4.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for RTN is calculated based on our internal credit rating of Raytheon, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Raytheon.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of RTN stock the variable cost ratio is equal to 72.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3492 million in the base year in the intrinsic value calculation for RTN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.3% for Raytheon.

Corporate tax rate of 27% is the nominal tax rate for Raytheon. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the RTN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for RTN are equal to 12.6%.

Life of production assets of 34.5 years is the average useful life of capital assets used in Raytheon operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for RTN is equal to 3.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $10066 million for Raytheon - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 291.583 million for Raytheon is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Raytheon at the current share price and the inputted number of shares is $51.6 billion.

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COMPANY NEWS

▶ Raytheon in a good place: Analyst   [04:55PM  CNBC Videos]
▶ What's working: Defense stocks   [06:51AM  CNBC Videos]
▶ ETFs with exposure to Raytheon Co. : August 11, 2017   [Aug-11-17 06:27PM  Capital Cube]
▶ Tech company adding 60 manufacturing jobs in ABQ   [04:40PM  American City Business Journals]
▶ Defense names in the blitz   [01:44PM  CNBC Videos]
▶ Experimental defense unit funds new tech but faces skeptics   [Aug-10-17 10:05PM  Associated Press]
▶ A North-Korea-proof investment portfolio   [Aug-09-17 07:44PM  CNBC Videos]
▶ Five IQ100 members hit new highs   [01:29PM  CNBC Videos]
▶ Defense Stocks Up as North Korea Rhetoric Intensifies   [10:10AM  The Wall Street Journal]
▶ Dow eyes ninth straight record-high   [Aug-07-17 09:19AM  Yahoo Finance]
▶ Raytheon's market cap soars past $50B on defense sector strength   [02:12PM  American City Business Journals]
▶ Margins Slip but Cash Surges at Raytheon   [08:41AM  Motley Fool]
▶ Roundtable: 3 Stocks We Can't Wait to Buy on Sale   [Jul-31-17 08:02AM  Motley Fool]
▶ Raytheon names Kurt Amend CEO of Arabia unit   [Jul-30-17 03:22PM  Reuters]
▶ 3 Dividend Stocks to Hold Forever   [Jul-29-17 12:00PM  Motley Fool]
▶ Raytheon tops Street 2Q forecasts   [Jul-27-17 06:38PM  Associated Press]
▶ Raytheon Raises Outlook As Air Defense Sales Boost Q2 Earnings   [04:19PM  Investor's Business Daily]
▶ Better Buy: Raytheon Company vs. Northrop Grumman   [Jul-25-17 07:41PM  Motley Fool]
▶ 3 Top Defense Stocks to Buy Now   [01:16PM  Zacks]
▶ [$$] Trump Nominates Defense Industry Executive as Army Secretary   [Jul-19-17 09:23PM  The Wall Street Journal]
▶ Lockheed Earnings Preview: F-35 Costs, Missile-Defense Sales In Focus   [Jul-15-17 09:52AM  Investor's Business Daily]
▶ U.S. Missile Sales To Allies Continue Amid Growing Global Tensions   [Jul-12-17 04:05PM  Investor's Business Daily]
▶ Lockheed's THAAD Successful Against Medium Range Missile   [Jul-11-17 04:06PM  Investor's Business Daily]
▶ Will Raytheon Abandon Cybersecurity?   [Jul-07-17 08:06PM  Motley Fool]
▶ North Korea defense sector impact   [02:15PM  CNBC Videos]
Stock chart of RTN Financial statements of RTN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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