Should You Pick RTX Corp Stock At $125 After 10% Gains In A Week?

RTX Corp stock (NYSE: RTX), formerly known as Raytheon Technologies, has seen a rise of 9% in a week, faring better than its peer — General Electric stock – up 3%. The rise in RTX stock in recent days can be attributed to the company’s upbeat Q2 results and its upward revision to the full-year outlook. RTX reported revenue of $19.7 billion and adjusted earnings of $1.41 per share, compared to the consensus estimates of $19.3 billion and $1.29, respectively. In this note, we discuss RTX’s stock performance, key takeaways from its recent results, and valuation.

Firstly, looking at its stock performance, RTX stock has seen strong gains of 65% from levels of $70 in early January 2021 to around $115 now, vs. an increase of about 45% for the S&P 500 over this period. However, the increase in RTX stock has been far from consistent. Returns for the stock were 23% in 2021, 19% in 2022, and -17% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that RTX underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for other heavyweights in the Industrials sector, including GE, CAT, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could RTX face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, RTX stock looks fully priced. At its current levels, RTX stock trades at 21x its expected earnings of $5.40 per share in 2024. The 21x figure is already higher than the stock’s average P/E ratio of 18x over the last three years.

RTX Corp’s revenue of 19.7 billion in Q2’24 was up 8% y-o-y, driven by higher demand for commercial aftermarket for Collins Aerospace and Pratt & Whitney. Collins Aerospace sales were up 10%, Pratt & Whitney revenue rose 19%, while Raytheon sales were down 3%. The decline in the Raytheon segment can be attributed to the divestiture of its cybersecurity, intelligence, and services business earlier this year. RTX also saw a 100 bps improvement in operating profit margin to 11.7% in Q2. Higher revenues and margin expansion resulted in earnings rising 9% y-o-y to $1.41 on a per share and adjusted basis.

Looking forward, RTX raised its sales outlook to $78.75 – $79.5 billion, up from $78.0 – $79.0 billion. It also revised its adjusted earnings per share guidance to $5.35 – $5.45, compared to its earlier guidance of $5.25 – $5.40. The upbeat Q2 and upward revision in outlook boded well with the investors. However, with its stock trading at a valuation multiple higher than the historical average, we think investors will be better off waiting for a dip to pick RTX.

While RTX stock looks like it has little room for growth, it is helpful to see how RTX Corp’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 7/26/2024
[2] Cumulative total returns since the end of 2016

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