Could RTX Be the Hidden Gem That Boosts Your Portfolio?

Core Viewpoint - RTX is positioned favorably in the commercial aerospace and defense sectors, benefiting from increased flight departures, production ramps from Boeing and Airbus, and heightened defense spending due to geopolitical tensions [1] RTX's Valuation - RTX stock appears undervalued based on Wall Street analyst consensus, with a price-to-free cash flow (FCF) multiple suggesting good value at around 20 times FCF for a mature industrial company [2][5] - Current market cap is $171 billion, with projected EBIT growth from$8.9 billion in 2023 to $13 billion in 2027, and FCF expected to rise from$5.5 billion in 2023 to $9.9 billion in 2027 [3] - The forward price-to-FCF multiple for 2025 is 23.9 times, but adjusting for a potential contamination issue in the geared turbofan engine could present a more attractive valuation of 20.5 times FCF [4] Near- to Medium-Term Outlook - RTX has a substantial backlog of$218 billion, including a defense backlog of $93 billion, indicating strong growth potential [6] - The commercial aerospace sector is expected to see increased production from Airbus and Boeing, with a projected 10% growth in the commercial after-market in 2025 [7] Industry Dynamics - Defense companies typically command a valuation premium due to stable government contracts, while commercial aerospace firms benefit from long-term income streams from servicing aircraft [5] - The U.S. defense budget may face cuts, which could impact future orders and long-term growth, despite current robust sales growth outlook [8][9][10] Investment Consideration - RTX presents an attractive investment opportunity with good return potential, but uncertainties regarding future orders may limit significant outperformance [11]