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Disclosure : I am not affliated to Raytheon or to Schaeffer. I have RTN on my watch list only because it is Bill Nygren's Q1 Pick.

Schaeffer's Market Observation Features Raytheon: RTN.

Business Wire, April 28, 2004 p6022


Today's Market Observation from Schaeffer's Investment Research features Raytheon (NYSE:RTN). Market Observations are market-based reports that provide insight and analysis from a unique and unbiased perspective. These are published on - the home of Bernie Schaeffer and Schaeffer's Investment Research. For additional information about this report or to have it delivered to you free via email every day click on the following link:

Raytheon Ahead of Earnings

Raytheon (NYSE:RTN), for those of you unfamiliar with the company, is a defense electronics contractor based out of the Boston area. The company provides all branches of the United States military (as well as other U.S. government agencies) with its line of products that include missiles, radar, sensors and electro-optics, surveillance and reconnaissance equipment, and communication and information systems, just to name a few. One would think that given the level of military activity our country has engaged in over the past year or so, that defense companies would be one place that investors would see potential profit opportunities. Nevertheless, investors have been quite pessimistic toward RTN.

The firm is due to report its first-quarter earnings numbers tomorrow morning before the opening bell, and the current consensus estimate is looking for 21 cents per share. Given all the pessimism currently directed toward RTN shares, investors may not be expecting too much. It is quite possible that an earnings report tomorrow that matches the consensus estimate could be seen as good news, or at least "not bad" news.

Let's take a look at some of the signs that investor pessimism is high toward Raytheon. First of all, we have seen a dramatic increase in the level of bearish bets made by traders in the form of put options. There are currently 232 put option contracts outstanding for every 100 call options in the nearest three options expiration months for RTN (May, June, and August). This Schaeffer's put/call open interest ratio (SOIR) of 2.32 is higher than 97 percent of all readings taken over the past year. When RTN reported its fourth-quarter earnings in January, there were more than 300 call options outstanding for every 100 puts, reflecting a high amount of optimism toward the shares. The stock went on to slide eight percent between the earnings announcement and its low in mid-March. The SOIR versus price chart for RTN can be seen below.

Click the following link to see the SOIR Chart for RTN Since January 2004: .

Another sign of increasing pessimism is the fact that short interest has more than doubled since the company's last earnings release. Should the stock react positively to earnings this time around, many of the shorts may be forced to buy back the shares to cover their position, adding fuel to the rally. Wall Street analysts aren't exactly jumping up and down over RTN either. Collective analyst ratings include six "buy" recommendations, nine "holds," and four "sells." With only about 30 percent of analysts placing a "buy" recommendation on the shares, there is definitely the potential for an upgrade or two based off a strong earnings report.

What makes RTN shares look rather attractive is the fact that the high level of pessimism toward this stock is amid a rather strong upward price trend that has held since mid-October of last year. While playing any stock ahead of its earnings report can be quite risky, a positive report out of Raytheon may lead to a sustained move higher as some of the pessimism toward the shares is unwound.

Click the following link to see the Weekly Chart of RTN Since October 2003 With 10-Week and 20-Week Moving Averages: .

The best way to take advantage of the timely Schaeffer commentaries is to sign up to receive their free e-newsletters -- Opening View, Midday Report, Market Recap and Monday Morning Outlook. Click here to have the Schaeffer's commentaries delivered to you free via email every day.

About Schaeffer's Investment Research (

Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, , is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology: .

COPYRIGHT 2004 Business Wire

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