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RTX Steals the Defense Spotlight: Should You Buy the Stock or Hold?
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RTX Corp. (RTX - Free Report) , a renowned defense contractor, has lately been in the headlines under the defense section for securing multiple million-dollar contracts over the past week and providing some favorable updates. Evidently, the company won a contract worth up to $1.3 billion to continue working on the F135 Engine Core Upgrade, a $525.5 million contract for producing and delivering guided missile assemblies of Evolved Seasparrow Missile, a $255 million contract to provide depot, intermediate level repair and maintenance for Standard Missile, and a $192 million contract to upgrade the Next Generation Jammer Mid-Band Expansion (NGJ-MB) system.
Moreover, RTX’s Pratt and Whitney unit announced the opening of its largest military engine facility in Oklahoma City, worth $255 million, to support global sustainment efforts for key military engines. While the multiple contract wins bolster RTX’s revenue generation prospects, the opening of the aforementioned facility would help the company to meet the growing demand for military jet engines.
This might encourage investors to add RTX stock to their portfolio. However, before making any hasty decision, let’s delve into the company’s year-to-date performance, growth opportunities and risks (if any).
RTX Outperforms Industry, Sector & S&P500
RTX’s shares have surged an impressive 48.6% in the year-to-date period, outperforming the Zacks Aerospace-Defense industry’s decline of 3.1% and the broader Zacks Aerospace sector’s rise of 3.8%. They have also outpaced the S&P 500’s return of 20.8%.
A similar stellar performance has been offered by other defense players such as Leidos Holdings (LDOS - Free Report) , TransDigm Group (TDG - Free Report) and Lockheed Martin (LMT - Free Report) , whose shares have surged 54%, 34.1% and 33.6%, respectively, year to date.
RTX YTD Performance
Image Source: Zacks Investment Research
What Led to RTX Stock’s Surge?
Thanks to steadily improving commercial air traffic in recent times, RTX’s commercial OEM and aftermarket sales are witnessing solid growth trends. Notably, the solid year-over-year organic sales growth of 10% in the second quarter of 2024 was majorly driven by its commercial aerospace business, with commercial OEM having registered sales growth of 19% and commercial aftermarket sales having improved 14%. Frequent contract wins, like the latest ones, consistently boost RTX’s backlog count. This is indicative of the company’s solid revenue generation prospects. RTX ended the second quarter with a solid defense backlog worth $77 billion.
Financial stability is a critical growth catalyst for defense contractors like RTX as they aim to invest more in upgrading their existing defense products amid the evolving threat landscape worldwide. Notably, RTX’s cash and cash equivalents totaled $6.01 billion as of June 30, 2024, which improved sequentially and also came in above the company’s current debt value of $1.84 billion. This reflects a solid solvency position for the stock, at least over the short term.
Is RTX Stock’s Growth Sustainable?
Looking ahead, the growth prospects of RTX remain bright in the defense industry. As we witness heightened geopolitical tensions across the globe as a result of a significant spike in cross-border disputes like that of Iran-Israel as well as civil unrest in different parts of the world lately, demand for defense products can be expected to remain solid in the near future. This should bolster the operating results of RTX, a prominent supplier of combat-proven missiles and radars both in the United States and international markets.
On the commercial aerospace front, RTX holds immense growth opportunities. To this end, the International Air Transport Association (“IATA”) predicts world passengers to increase 3.8% per year on average, resulting in more than 4 billion additional passenger journeys in 2043 compared to 2023, over the next 20 years. This should boost the demand for new aircraft, thereby strengthening long-term growth opportunities for RTX’s commercial OEM as well as commercial aerospace aftermarket sales.
In line with this, 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 7.2%, respectively, from the prior-year quarter’s level.
The annual estimate figures also indicate a similar picture. The Zacks Consensus Estimate for 2024 earnings suggests an improvement of 7% from 2023, while that for revenues implies a surge of 7.7%. The 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 remain certain industry challenges that a prudent investor should consider before investing in RTX. One such notable headwind plaguing RTX 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 prices tend to put cost pressure on airlines, which may then be compelled to reduce their orders for new aircraft from jet manufacturers. This 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. With persistent supply-chain challenges still affecting the aerospace sector, it might cause RTX to experience failure in delivering finished products to its customers within the stipulated time.
RTX Stock Trading at a Premium
In terms of valuation, RTX’s forward 12-month price-to-earnings (P/E) is 20.15X, a premium to its peer group’s average of 19.97X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers.
Image Source: Zacks Investment Research
Should You Buy or Hold 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, steadily growing commercial air traffic and growing demand for defense products offer solid prospects.
Image: Bigstock
RTX Steals the Defense Spotlight: Should You Buy the Stock or Hold?
RTX Corp. (RTX - Free Report) , a renowned defense contractor, has lately been in the headlines under the defense section for securing multiple million-dollar contracts over the past week and providing some favorable updates. Evidently, the company won a contract worth up to $1.3 billion to continue working on the F135 Engine Core Upgrade, a $525.5 million contract for producing and delivering guided missile assemblies of Evolved Seasparrow Missile, a $255 million contract to provide depot, intermediate level repair and maintenance for Standard Missile, and a $192 million contract to upgrade the Next Generation Jammer Mid-Band Expansion (NGJ-MB) system.
Moreover, RTX’s Pratt and Whitney unit announced the opening of its largest military engine facility in Oklahoma City, worth $255 million, to support global sustainment efforts for key military engines. While the multiple contract wins bolster RTX’s revenue generation prospects, the opening of the aforementioned facility would help the company to meet the growing demand for military jet engines.
This might encourage investors to add RTX stock to their portfolio. However, before making any hasty decision, let’s delve into the company’s year-to-date performance, growth opportunities and risks (if any).
RTX Outperforms Industry, Sector & S&P500
RTX’s shares have surged an impressive 48.6% in the year-to-date period, outperforming the Zacks Aerospace-Defense industry’s decline of 3.1% and the broader Zacks Aerospace sector’s rise of 3.8%. They have also outpaced the S&P 500’s return of 20.8%.
A similar stellar performance has been offered by other defense players such as Leidos Holdings (LDOS - Free Report) , TransDigm Group (TDG - Free Report) and Lockheed Martin (LMT - Free Report) , whose shares have surged 54%, 34.1% and 33.6%, respectively, year to date.
RTX YTD Performance
What Led to RTX Stock’s Surge?
Thanks to steadily improving commercial air traffic in recent times, RTX’s commercial OEM and aftermarket sales are witnessing solid growth trends. Notably, the solid year-over-year organic sales growth of 10% in the second quarter of 2024 was majorly driven by its commercial aerospace business, with commercial OEM having registered sales growth of 19% and commercial aftermarket sales having improved 14%.
Frequent contract wins, like the latest ones, consistently boost RTX’s backlog count. This is indicative of the company’s solid revenue generation prospects. RTX ended the second quarter with a solid defense backlog worth $77 billion.
Financial stability is a critical growth catalyst for defense contractors like RTX as they aim to invest more in upgrading their existing defense products amid the evolving threat landscape worldwide. Notably, RTX’s cash and cash equivalents totaled $6.01 billion as of June 30, 2024, which improved sequentially and also came in above the company’s current debt value of $1.84 billion. This reflects a solid solvency position for the stock, at least over the short term.
Is RTX Stock’s Growth Sustainable?
Looking ahead, the growth prospects of RTX remain bright in the defense industry. As we witness heightened geopolitical tensions across the globe as a result of a significant spike in cross-border disputes like that of Iran-Israel as well as civil unrest in different parts of the world lately, demand for defense products can be expected to remain solid in the near future. This should bolster the operating results of RTX, a prominent supplier of combat-proven missiles and radars both in the United States and international markets.
On the commercial aerospace front, RTX holds immense growth opportunities. To this end, the International Air Transport Association (“IATA”) predicts world passengers to increase 3.8% per year on average, resulting in more than 4 billion additional passenger journeys in 2043 compared to 2023, over the next 20 years. This should boost the demand for new aircraft, thereby strengthening long-term growth opportunities for RTX’s commercial OEM as well as commercial aerospace aftermarket sales.
In line with this, 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 7.2%, respectively, from the prior-year quarter’s level.
The annual estimate figures also indicate a similar picture. The Zacks Consensus Estimate for 2024 earnings suggests an improvement of 7% from 2023, while that for revenues implies a surge of 7.7%. The 2025 estimates also reflect similar growth trends.
Risks to Take Note of Before Choosing RTX
Despite the aforementioned growth opportunities, there remain certain industry challenges that a prudent investor should consider before investing in RTX. One such notable headwind plaguing RTX 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 prices tend to put cost pressure on airlines, which may then be compelled to reduce their orders for new aircraft from jet manufacturers. This 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. With persistent supply-chain challenges still affecting the aerospace sector, it might cause RTX to experience failure in delivering finished products to its customers within the stipulated time.
RTX Stock Trading at a Premium
In terms of valuation, RTX’s forward 12-month price-to-earnings (P/E) is 20.15X, a premium to its peer group’s average of 19.97X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers.
Should You Buy or Hold 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, steadily growing commercial air traffic and growing demand for defense products offer solid prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.