Is RTX Stock a Buy?

Core Viewpoint - RTX has raised its full-year revenue and earnings guidance while addressing concerns over GTF engine inspections, indicating strong growth potential in both commercial aerospace and defense sectors [1][8]. Financial Guidance - RTX's updated full-year guidance includes sales projected between $78.75 billion and $79.5 billion, with organic sales growth revised to 8% to 9% [3] - Adjusted EPS is now expected to be between $5.35 and $5.45, while free cash flow guidance has been reduced to $4.7 billion [3][10]. Business Segments Performance - The company operates in three segments: Collins Aerospace, Pratt & Whitney, and Raytheon, with strong growth reported in commercial original equipment and aftermarket sales, as well as defense business [3][4]. - In Q2, RTX reported a 19% year-over-year increase in commercial OE sales and a 14% rise in commercial aftermarket sales [4]. Backlog and Awards - RTX secured $24 billion in awards during the quarter, achieving a book-to-bill ratio of 1.25, with a backlog exceeding $206 billion, representing 2.6 years of sales [5]. GTF Engine Inspections - The company is actively inspecting GTF engines for potential contamination issues, with a fallout rate below 1%, consistent with management's expectations [6][7]. Defense Business Challenges - Despite positive growth prospects, RTX faces challenges in defense margins, with a $1 billion reduction in free cash flow guidance due to legacy contract issues and compliance matters [10][12]. - The termination of a fixed-price development contract will have a $0.5 billion cash impact, highlighting the complexities in defense contract negotiations [10]. Valuation Considerations - RTX's cash flow-based valuation suggests the stock is not particularly undervalued, with an expected free cash flow of $7.5 billion in 2025, translating to a valuation of 20.3 times the estimated free cash flow [12].