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RTX Stock Has 31% Upside, According to 1 Wall Street Analyst
RTXRaytheon Technologies(RTX) The Motley Fool·2025-01-09 19:30

Price Target and Valuation - Wells Fargo raised RTX's price target to 151from151 from 140, representing a 31% premium to the current price [1] - Wall Street consensus projects RTX to generate 8.4billioninfreecashflow(FCF)in2026,implyingaprice−to−FCFmultipleof18.2timesbasedonthecurrentmarketcapof8.4 billion in free cash flow (FCF) in 2026, implying a price-to-FCF multiple of 18.2 times based on the current market cap of 153 billion [1] - Achieving the 151pricetargetwouldplaceRTXataprice−to−FCFmultipleofjustunder24times2026FCF,whichislowerthansomeaerospaceanddefensepeers[2]BusinessPerformanceandGrowthDrivers−RTXovercametheGTFengineinspectionsissueandsawstrongaftermarketsales,offsettingweaknessinoriginalequipmentsalesduetodisappointingairplaneproductionatBoeingandAirbus[3]−RTX′sdefensebusiness,Raytheon,improvedadjustedoperatingprofitmarginsineveryreportedquarterof2024sofar[3]IndustryChallengesandValuationConcerns−Defensestockvaluationsappearstretched,andthesectormaybeovervalued[4]−TheindustryfaceschallengesfromtheU.S.government′spushforfixed−pricedevelopmentprograms,andthereisnoguaranteethatcurrentelevatedspendinglevelswillcontinue[4]−IfRTX′sdefensebusinessreturnstoalowsingle−digitgrowthrate,thecurrentvaluationsmaynotjustifythe151 price target would place RTX at a price-to-FCF multiple of just under 24 times 2026 FCF, which is lower than some aerospace and defense peers [2] Business Performance and Growth Drivers - RTX overcame the GTF engine inspections issue and saw strong aftermarket sales, offsetting weakness in original equipment sales due to disappointing airplane production at Boeing and Airbus [3] - RTX's defense business, Raytheon, improved adjusted operating profit margins in every reported quarter of 2024 so far [3] Industry Challenges and Valuation Concerns - Defense stock valuations appear stretched, and the sector may be overvalued [4] - The industry faces challenges from the U.S. government's push for fixed-price development programs, and there is no guarantee that current elevated spending levels will continue [4] - If RTX's defense business returns to a low single-digit growth rate, the current valuations may not justify the 151 price target [5]