The shares of RTX dropped to $69 in October 2023 after the company issued a recall of some defective jet engines. Despite that setback, the shares have rebounded on improving demand for the firm’s commercial and military products. Cost savings also let the company return more cash to its shareholders.
Despite the setbacks, we feel the dividend is attractive and safe.
What’s more, the stock trades at 16.8 times the company’s 2024 earnings forecast.
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RTX CORP. (New York symbol RTX; www.rtx.com) makes commercial aircraft equipment, systems for military aircraft, and guided missiles.
RTX was formed from the 2020 merger of Raytheon and United Technologies. As part of the merger, the new firm also spun off its Otis (elevator) and Carrier (heating and air conditioning equipment) businesses as separate firms.
RTX has three divisions: Collins Aerospace makes aircraft control systems, navigation equipment and cabin interiors (34% revenue, 50% of earnings); Pratt & Whitney makes jet engines (32%, 20%); and Raytheon makes a variety of military equipment, such as land and sea-based missile defence and radar systems (34%, 30%). The U.S. government is the company’s biggest customer, accounting for about 55% of its revenue.
The new company’s sales rose 21.8%, from $56.59 billion in 2020 to $68.92 billion in 2023. That’s largely due to better demand from aircraft makers following the end of COVID-19 travel restrictions. Russia’s invasion of Ukraine has also spurred demand for its Patriot missiles.
Overall earnings, excluding one-time items, soared 95.7%, from $3.71 billion in 2020 to $7.26 billion in 2023. Due to more shares outstanding as a result of the merger, per-share earnings rose at a slower pace of 85.3%, from $2.73 to $5.06.
With the June 2023 payment, RTX raised your quarterly dividend by 7.3%, to $0.59 a share from $0.55. The new annual rate of $2.36 yields 2.6%.
Growth Stocks: RTX’s revenue and earnings recover despite jet engine recall
The company’s Pratt & Whitney unit recently announced that contaminated metal in some engine parts will force it to remove and inspect between 600 and 700 jet engines over the next three years. RTX recorded a charge of $3.0 billion to cover these costs.
Despite that setback, revenue in the fourth quarter of 2023 rose 9.6%, to $19.82 billion from $18.09 billion a year earlier. Sales to commercial aircraft makers continue to rise as air travel volumes return to pre-pandemic levels. Earnings per share gained 1.6%, to $1.29 from $1.27.
RTX continues to win new orders. Its backlog at the end of 2023 was a record $196 billion, consisting of $118 billion (60%) for commercial products and $78 billion (40%) for defense equipment.
That strong backlog, plus $1.7 billion in annual cost savings since the 2020 merger, should lift the company’s 2024 free cash flow (regular cash flow less capital expenditures) by about 4% to $5.7 billion.
The higher free cash flow will also let RTX keep paying down its long-term debt of $42.36 billion, which a manageable 34% of its market cap. It also held cash of $6.59 billion.
For 2024, savings from a cost-cutting plan should lift RTX’s earnings about 6% to $5.38 a share. The stock trades at an attractive 16.8 times that estimate.
Recommendation in Wall Street Stock Forecaster: RTX (formerly Raytheon Technologies) is a buy.
