RTX Corporation: Set To Reach New Heights, Reiterate Buy

Core Viewpoint - RTX Corporation has demonstrated strong performance in both commercial and defense aerospace markets, supported by a growing backlog and management's cost reduction initiatives, leading to a maintained Buy rating [1][2]. Financial Performance - RTX reported adjusted revenues of $19.8 billion for FQ2'24, reflecting a 2.5% quarter-over-quarter (QoQ) and 8.1% year-over-year (YoY) increase, with adjusted EPS of $1.41, up 5.2% QoQ and 9.3% YoY [4]. - Free Cash Flow generation reached $2.2 billion, marking a significant increase of 2,100% QoQ and 1,039% YoY [4]. Backlog and Demand - The company has a multi-year backlog of $129 billion for commercial contracts, up 3.2% QoQ and 15.1% YoY, and $77 billion for defense contracts, with a 5.4% YoY increase [5][6]. - The demand for defense capabilities is rising due to ongoing geopolitical tensions, contributing to the growth in RTX's defense contracts [6][7]. Market Trends - The US government's defense spending is projected to reach $2.12 trillion in FY2024, a 39.4% YoY increase, indicating a favorable environment for defense contractors like RTX [7][8]. - The commercial aerospace market is expected to see a 3% increase in airplane deliveries over the next twenty years, further supporting RTX's growth [6]. Guidance and Estimates - RTX has raised its FY2024 guidance to revenues of $79.12 billion, a 14.8% YoY increase, and adjusted EPS of $5.40, up 6.7% YoY [9]. - The consensus estimates project a CAGR of 8.8% for revenue and 10.5% for EPS through FY2026, reflecting strong growth expectations [11]. Valuation - RTX's forward P/E valuation is currently at 21.48x, higher than its 5-year average of 19.29x, indicating a premium valuation compared to its peers [12][11]. - The updated fair value estimate for RTX is $104.50, suggesting the stock is trading at a notable premium, with a long-term price target of $134.70, indicating a potential upside of 14.6% [14][15].