Robust military demand amidst geopolitical tensions is a key driver for this firm since the U.S. government is its top customer.
The shares have returned 26.3% in 2024 already and look set to continue that performance: the company boasts a record order backlog, giving it plenty of future revenue growth upside and long-term stability too. We don’t see military demand slackening any time soon.
Meanwhile, the stock still trades relatively cheaply at 17.3 times the company’s forward earnings forecast. You also get a solid yield, especially after the most recent 6.8% dividend raise.
RTX CORP. (New York symbol RTX; www.rtx.com) is a leading maker of commercial aircraft equipment, electronic systems for military aircraft, and guided missiles.
The company recently changed its name from Raytheon Technologies Corp. (it did not change the trading symbol). RTX, formed from the 2020 merger of Raytheon and United Technologies, is a leading maker of commercial aircraft equipment, electronic systems for military aircraft, and guided missiles.
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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.
Growth Stocks: Recent quarter and record backlog shows strong demand
RTX’s revenue in the first quarter of 2024 rose 12.1%, to $19.31 billion from $17.21 billion a year earlier. That beat the consensus forecast of $18.41 billion.
The higher revenue is mainly due to stronger sales of military equipment. Demand should continue to improve now that the U.S. Congress has authorized additional military support for Ukraine and Israel. As well, demand for aftermarket services from commercial airlines continues to rise due to the recovery in air travel and the limited availability of new planes.
With the June 2024 payment, RTX will raise your quarterly dividend by 6.8%, to $0.63 a share from $0.59. The new annual rate of $2.52 yields 2.4%.
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 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. Despite costs associated with the jet engine recall, RTX expects its free cash flow (regular cash flow less capital expenditures) for all of 2024 will still total $5.7 billion. The company also recently sold its Cybersecurity, Intelligence and Services business for $1.3 billion.
That cash will let RTX keep buying back its shares and raising your dividend. The shares also trade at an attractive 17.3 times the company’s likely 2024 earnings of $5.39 a share.
Recommendation in Wall Street Stock Forecaster: RTX Corp. (formerly Raytheon Technologies Corp.) is a buy.
