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RTX: Why I Remain One Of The Biggest Bulls On The Market
RTXRaytheon Technologies(RTX) Seeking Alpha·2024-08-04 07:37

Market Overview - The markets are experiencing significant turmoil, with big tech losing approximately 3trillioninmarketvalueinlessthanamonth,andtheNasdaq100decliningforfourconsecutiveweeks[2]−TheVIXindexhasspiked,indicatingthehighestvolatilitysince2022[2]EconomicIndicators−TheISMManufacturingIndexshowsongoingweaknessinindustrialsectors,withemploymentnumbersindicatingahigherunemploymentrateandweakhiring[4]−Theten−yearbondratehasfallensignificantly,reflectinginvestorconcernsaboutfutureeconomicweakness[4]PerformanceofValueStocks−Valuestocksareunderperformingcomparedtogrowthstocks,withtheRussell1000ValueIndexlaggingbehindtheRussell1000GrowthIndex[3]RTXCorporationPerformance−RTXCorporationhasshownstrongperformance,witha613 trillion in market value in less than a month, and the Nasdaq 100 declining for four consecutive weeks [2] - The VIX index has spiked, indicating the highest volatility since 2022 [2] Economic Indicators - The ISM Manufacturing Index shows ongoing weakness in industrial sectors, with employment numbers indicating a higher unemployment rate and weak hiring [4] - The ten-year bond rate has fallen significantly, reflecting investor concerns about future economic weakness [4] Performance of Value Stocks - Value stocks are underperforming compared to growth stocks, with the Russell 1000 Value Index lagging behind the Russell 1000 Growth Index [3] RTX Corporation Performance - RTX Corporation has shown strong performance, with a 61% increase in share price since October 16, outperforming the S&P 500 by a significant margin [7] - The company reported 19.8 billion in sales for Q2, indicating 10% organic growth, driven by a 19% rise in commercial Original Equipment sales and a 14% increase in commercial aftermarket sales [13] - RTX's defense segment also contributed to growth, with a 7% increase in sales, excluding the impact of the Raytheon cybersecurity divestiture [13] Demand and Backlog - RTX received 24billioninneworders,pushingitsbacklogto24 billion in new orders, pushing its backlog to 206 billion, with a book-to-bill ratio of 1.25x [13] - The company is experiencing strong demand for its products, including 640millionforSPY−6radarproductionand640 million for SPY-6 radar production and 5 billion in new defense orders [15] Financial Guidance and Shareholder Returns - RTX has raised its guidance for adjusted sales to a range of 78.75billionto78.75 billion to 79.5 billion, with expected organic sales growth of 8% to 9% [17] - The company plans to distribute up to 37billionbetweenbuybacksanddividends,witharecentdividendhikeof6.837 billion between buybacks and dividends, with a recent dividend hike of 6.8% to 0.63 per share [19][21] - RTX has bought back 11% of its shares over the past three years, supported by a healthy balance sheet and expected free cash flow growth [22] Valuation and Investment Outlook - Analysts project a fair stock price of $144 for RTX, representing a 24% upside from current levels, based on a 21x P/E multiple [22][23] - The company is positioned well in both commercial and defense sectors, making it a compelling investment despite broader market uncertainties [24]