Here's why Raytheon could be the biggest beneficiary of the Saudi oil attack

Raytheon joint strike missile on f16A partnership between Raytheon and Kongsberg, the Joint Strike Missile is a long-distance, anti-ship missile designed to take on high-value, heavily defended targetsUS AIr Force via Raytheon

  • Raytheon could be the biggest corporate beneficiary of the Saudi oil attack, according to a Monday note from Sheila Kahyaoglu, an equity analyst at Jefferies.
  • Saudi Arabia has the largest defense budget in the Middle East, and makes up 5% of Raytheon's sales.
  • In addition, Raytheon sells the NASAMS, a key missile defense system that Saudi Arabia currently has under contract. Increased NASAMS sales to Saudi Arabia could specifically benefit Raytheon.
  • Watch Raytheon trade live on Markets Insider.

US defense contractor Raytheon could benefit the most in the industry from the Saudi oil attack, according to Sheila Kahyoaglu of Jefferies.

Saudi Arabia - which accounts for 5% of Raytheon's total sales - has the largest defense budget in the Middle East, where spending correlates with oil. Per year, the country spends $52 billion on defense, making it the fifth-largest market in the world.

Raytheon could get the biggest boost from the country's increased spending because it has a broad portfolio of applicable products, according to Jefferies. Raytheon has also had the most foreign military sales to the Middle East this year, and brought in $37 billion from the region in the last six. Only Lockheed Martin, which $58 billion, topped its revenue in that time frame.

Raytheon sells one of the key missile defense systems that Saudi Arabia currently has under contract, the NASAMS, an advanced surface-to-air missile system. Raytheon could benefit specifically from increased sales of this system.

Saudi Aramco's oil facilities were attacked by drones on September 14, disrupting 50% of Aramco's daily output and 5% of global output. Even though a Yemeni Houthi group has claimed responsibility for the attack, the Trump Administration including Secretary of State Mike Pompeo have blamed Iran.

The US could strike back through military action or further sanctions, Kahyoaglu wrote. President Donald Trump tweeted that the US is "locked and loaded depending on verification" that Iran is involved - US evidence points to Iran's involvement, but it is waiting on Saudi Arabia to verify.

The nature of the attack "also points to the importance of short range protection, which supports ongoing tailwinds for international military spending," Kahyoaglu wrote. Recently, Saudi Arabia has focused on both offensive and defensive weapons systems.

Still, even if it is determined that Iran is responsible for the attack, escalation is not a given, wrote Kahyoaglu. When Iran shot down a US drone in June 2019, the US contemplated a military strike but ultimately called off action because of the potential risks of launching an attack.

And, Raytheon wouldn't be the only beneficiary. Lockheed Martin, Boeing, Northrup Grumman, L3Harris Technologies, General Dynamics, and Textron have all sell to foreign militaries in the Middle East.

Shares of Raytheon are up 3.12% today and 32% year to date.

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