Commercial air traffic volumes have now rebounded to 80% of their pre-pandemic levels. That continues to spur demand for this company’s aerospace products.
Meanwhile, the company’s military businesses also benefit as the U.S. and other NATO countries seek to replenish the stockpile of missiles and other weapons currently being sent to Ukraine to help it repel the Russian invasion.
What’s more, the stock is attractively priced in relation to its earnings. It trades at 19.6 times the company’s 2023 earnings forecast.
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RAYTHEON TECHNOLOGIES CORP. (New York symbol RTX; www.rtx.com) is a diversified aerospace and defence industrial company. The firm took its current form on April 3, 2020, with the all-stock merger of United Technologies Corp. and Raytheon Co. It also spun off its Otis (elevator) and Carrier (heating and air conditioning equipment) businesses as separate firms.
Currently, Raytheon plans to re-organize its operations into three new divisions in the second half of 2023: Collins Aerospace, which makes aircraft control systems, navigation equipment and cabin interiors; Pratt & Whitney, a maker of jet engines; and Raytheon, which makes land and sea-based missile defence and radar systems, as well as satellites for government intelligence agencies and corporate clients.
The U.S. government is now the company’s biggest customer, accounting for roughly half of its total revenue.
Raytheon’s sales rose 48.6%, from $45.35 billion in 2019 to $67.39 billion in 2022. Overall earnings, excluding one-time items, declined 13.2%, from $4.28 billion in 2019 to $3.71 billion in 2020. Due to more shares outstanding as a result of the merger, per-share earnings fell at a faster rate of 44.8%, from $4.95 to $2.73.
However, earnings rebounded 73.7% in 2021 to $6.45 billion, while per-share earnings gained 56.4% to $4.27. Earnings improved a further 10.1% in 2022, to $7.10 billion, while per share earnings gained 11.9% to $4.78.
A big part of those higher earnings comes from cutting $1.4 billion from the company’s annual costs following the merger with United Technologies.
Growth Stocks: Cost savings pay down debt while the backlog builds up
Raytheon is using those merger savings to pay down its long-term debt, which stood at $30.69 billion at the end of 2022. That’s a moderate 21.5% of its market cap. It also held cash of $6.22 billion.
The company also received $86 billion worth of new orders in 2022. Its total backlog was $175 billion (60% civilian, 40% military) as of December 31, 2022. That’s up from $156 billion at the end of 2021.
Raytheon expects to generate free cash flow (regular cash flow less maintenance capital expenses) of $4.8 billion in 2023. That will fund its plan to buy back $3.0 billion of its shares this year.
The company’s earnings in 2023 should also rise to between $4.90 and $5.05 share. The stock trades at a reasonable 19.6 times the midpoint of that range. The improving earnings should also give Raytheon more room to raise its $2.20 dividend, which yields a solid 2.3%.
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