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RTX Stock Surges 46.6% Year to Date: Should You Buy Now or Wait?
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RTX Corp.’s (RTX - Free Report) shares have surged an impressive 46.6% in the year-to-date period, outperforming the Zacks Aerospace-Defense industry, the broader Zacks Aerospace sector and the S&P 500. As a prominent missile manufacturer, RTX rides on solid defense order growth, growing commercial air traffic as well as a solid financial position.
A similar stellar performance has been offered by other defense players such as Lockheed Martin (LMT - Free Report) , Leidos Holdings (LDOS - Free Report) and TransDigm Group (TDG - Free Report) , whose shares have witnessed a surge of 25.3%, 46.4% and 35.7%, respectively, year to date.
RTX Outperforms Industry, Sector & S&P500
Image Source: Zacks Investment Research
With RTX riding high, individuals may rush to add it to their portfolio. However, before making any hasty decision, it would be prudent to take a look at the reasons behind the surge, the stock’s growth prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
What Pushed RTX Up?
As a prominent U.S. defense contractor, RTX enjoys a steady flow of orders for its combat-proven defense products, particularly missiles and radars. Such order growth culminates into notable booking and backlog count, which, in turn, should boost the company’s revenue generation prospects. Evidently, RTX witnessed a solid defense backlog of $77 billion as of June 30, 2024, while its defense bookings totaled approximately $11 billion.
Improving commercial air traffic has been boosting commercial OEM as well as commercial aftermarket sales for RTX in recent times. Notably, its second-quarter 2024 organic sales grew 10% year over year. A major portion of this growth was driven primarily by its commercial aerospace business, buoyed by strong commercial OEM sales growth of 19% and commercial aftermarket sales improvement of 14%.
A solid financial position enables RTX to smoothly invest in the innovation of new products and thereby enhance its market share. Its financial strength also allows RTX to reward its shareholders with notable repurchases. During the second quarter of 2024, the company repurchased shares worth $0.10 billion.
Will RTX Continue to Grow?
Looking ahead, growth prospects for the commercial aerospace market and RTX’s commercial business remain bright. As per the International Air Transport Association’s (“IATA”) latest report published in June 2024, air revenue passenger kilometers (RPKs) are projected to improve 11.6% in 2024 from the 2023 level. This should boost the demand for new aircraft, strengthening commercial OEM as well as commercial aerospace aftermarket sales for RTX in the coming days.
In the defense space, emerging geopolitical tensions across the globe have led to a massive spike in weapons stock depletion and increased defense spending from both developed and developing nations. This, in turn, has set the stage for a notable growth trajectory for S&P 500 defense stocks like RTX.
The Zacks Consensus Estimate for RTX’s long-term earnings growth rate is pegged at a solid 10.4%.
A quick sneak peek at its near-term earnings and sales estimates mirrors a similar picture.
RTX’s Upbeat Estimates
The Zacks Consensus Estimate for RTX’s third-quarter revenues and earnings reflects a solid improvement of 5.3% and 6.4%, respectively, from the prior-year quarter’s level.
The annual estimate figures also indicate a similar picture. The Zacks Consensus Estimate for 2024 earnings indicates an improvement of 7% from 2023, while that for revenues implies a surge of 7.7%. Its 2025 estimates also reflect similar growth trends.
Image Source: Zacks Investment Research
Risks to Take Note of Before Choosing RTX
Despite the aforementioned growth opportunities, there are certain challenges in the industry that a prudent investor should consider before investing in RTX. One notable headwind plaguing the stocks operating in the commercial aerospace is the adverse impact of increasing crude oil prices.
Notably, crude oil prices increased in the second half of 2023 after a slight stabilization in the first half. In its December 2023 report, IATA anticipated crude oil prices to remain high in the range of $85-$90 per barrel in 2024. This will be higher than the average price per barrel of $83, witnessed in 2023. Such increased fuel price tends to put cost pressure on airlines, which may then be compelled to reduce their orders for new aircraft from jet manufacturers. This, in turn, may adversely impact the future performance of commercial OEM producers like RTX.
Moreover, global supply-chain disruption has negatively impacted RTX’s operating results in the recent past. The expectation for the supply-chain challenge does not offer any near-time relief. Such persistent issues affecting the aerospace sector might cause RTX to experience failure in delivering finished products to its customers within the stipulated time.
RTX Trading at a Premium
In terms of valuation, RTX’s forward 12-month price-to-sales (P/S) is 1.99X, a premium to its peer group’s average of 1.83X. This suggests that investors will be paying a higher price than the company's expected sales growth compared to that of its peers.
Image Source: Zacks Investment Research
Should You Buy RTX Now?
To conclude, investors interested in RTX should wait for a better entry point, considering its premium valuation. RTX currently has a VGM Score of C, which is also not a very favorable indicator of strong performance.
However, those who already own this Zacks Rank #3 (Hold) stock may stay invested as the company's upbeat estimates, benefits of steadily growing commercial air traffic as well as growing defense spending worldwide offer solid prospects.
Image: Bigstock
RTX Stock Surges 46.6% Year to Date: Should You Buy Now or Wait?
RTX Corp.’s (RTX - Free Report) shares have surged an impressive 46.6% in the year-to-date period, outperforming the Zacks Aerospace-Defense industry, the broader Zacks Aerospace sector and the S&P 500. As a prominent missile manufacturer, RTX rides on solid defense order growth, growing commercial air traffic as well as a solid financial position.
A similar stellar performance has been offered by other defense players such as Lockheed Martin (LMT - Free Report) , Leidos Holdings (LDOS - Free Report) and TransDigm Group (TDG - Free Report) , whose shares have witnessed a surge of 25.3%, 46.4% and 35.7%, respectively, year to date.
RTX Outperforms Industry, Sector & S&P500
With RTX riding high, individuals may rush to add it to their portfolio. However, before making any hasty decision, it would be prudent to take a look at the reasons behind the surge, the stock’s growth prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
What Pushed RTX Up?
As a prominent U.S. defense contractor, RTX enjoys a steady flow of orders for its combat-proven defense products, particularly missiles and radars. Such order growth culminates into notable booking and backlog count, which, in turn, should boost the company’s revenue generation prospects. Evidently, RTX witnessed a solid defense backlog of $77 billion as of June 30, 2024, while its defense bookings totaled approximately $11 billion.
Improving commercial air traffic has been boosting commercial OEM as well as commercial aftermarket sales for RTX in recent times. Notably, its second-quarter 2024 organic sales grew 10% year over year. A major portion of this growth was driven primarily by its commercial aerospace business, buoyed by strong commercial OEM sales growth of 19% and commercial aftermarket sales improvement of 14%.
A solid financial position enables RTX to smoothly invest in the innovation of new products and thereby enhance its market share. Its financial strength also allows RTX to reward its shareholders with notable repurchases. During the second quarter of 2024, the company repurchased shares worth $0.10 billion.
Will RTX Continue to Grow?
Looking ahead, growth prospects for the commercial aerospace market and RTX’s commercial business remain bright. As per the International Air Transport Association’s (“IATA”) latest report published in June 2024, air revenue passenger kilometers (RPKs) are projected to improve 11.6% in 2024 from the 2023 level. This should boost the demand for new aircraft, strengthening commercial OEM as well as commercial aerospace aftermarket sales for RTX in the coming days.
In the defense space, emerging geopolitical tensions across the globe have led to a massive spike in weapons stock depletion and increased defense spending from both developed and developing nations. This, in turn, has set the stage for a notable growth trajectory for S&P 500 defense stocks like RTX.
The Zacks Consensus Estimate for RTX’s long-term earnings growth rate is pegged at a solid 10.4%.
A quick sneak peek at its near-term earnings and sales estimates mirrors a similar picture.
RTX’s Upbeat Estimates
The Zacks Consensus Estimate for RTX’s third-quarter revenues and earnings reflects a solid improvement of 5.3% and 6.4%, respectively, from the prior-year quarter’s level.
The annual estimate figures also indicate a similar picture. The Zacks Consensus Estimate for 2024 earnings indicates an improvement of 7% from 2023, while that for revenues implies a surge of 7.7%. Its 2025 estimates also reflect similar growth trends.
Risks to Take Note of Before Choosing RTX
Despite the aforementioned growth opportunities, there are certain challenges in the industry that a prudent investor should consider before investing in RTX. One notable headwind plaguing the stocks operating in the commercial aerospace is the adverse impact of increasing crude oil prices.
Notably, crude oil prices increased in the second half of 2023 after a slight stabilization in the first half. In its December 2023 report, IATA anticipated crude oil prices to remain high in the range of $85-$90 per barrel in 2024. This will be higher than the average price per barrel of $83, witnessed in 2023. Such increased fuel price tends to put cost pressure on airlines, which may then be compelled to reduce their orders for new aircraft from jet manufacturers. This, in turn, may adversely impact the future performance of commercial OEM producers like RTX.
Moreover, global supply-chain disruption has negatively impacted RTX’s operating results in the recent past. The expectation for the supply-chain challenge does not offer any near-time relief. Such persistent issues affecting the aerospace sector might cause RTX to experience failure in delivering finished products to its customers within the stipulated time.
RTX Trading at a Premium
In terms of valuation, RTX’s forward 12-month price-to-sales (P/S) is 1.99X, a premium to its peer group’s average of 1.83X. This suggests that investors will be paying a higher price than the company's expected sales growth compared to that of its peers.
Image Source: Zacks Investment Research
Should You Buy RTX Now?
To conclude, investors interested in RTX should wait for a better entry point, considering its premium valuation. RTX currently has a VGM Score of C, which is also not a very favorable indicator of strong performance.
However, those who already own this Zacks Rank #3 (Hold) stock may stay invested as the company's upbeat estimates, benefits of steadily growing commercial air traffic as well as growing defense spending worldwide offer solid prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.