Raytheon Raising Our Credit Rating

Raytheon

The following is a summary of the UBS report on this topic, dated September 16, 2005.

Raising our Credit Rating to BBB from BBB-:
We are raising RTN's Credit Rating to BBB from BBB- as a result of additional debt reduction and a strengthened operating profile. Our Stable Credit Trend and Underperform recommendation remain unchanged. RTN's leadership position in the defense electronics market, broad program base, and technological strengths should allow continued profitable growth despite potential defense budget cuts.

Debt reduction continues:
Stronger earnings combined with proceeds from divestitures and an equity offering has enabled RTN to reduce debt and improve credit metrics over the past several quarters. Given RTN's cash generation potency, we believe the company can judiciously increase shareholder rewards while maintaining its solid credit profile.

Maintain Underperform recommendation:
Although we recognize RTN's impressive operating gains and balance sheet improvements, we believe the market has more than priced in the good news. In our view, RTN's current bond spreads are too tight compared with its similarly rated peers. Therefore, we reiterate our Underperform opinion.