Hook & thesis
RTX is not a broken business. The company runs four strong franchises - Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense - and it produces real cash: free cash flow was roughly $7.94 billion most recently, and management sits on a backlog of about $260 billion that provides multi-year top-line visibility. Those facts matter when one segment is facing headline risk.
Pratt & Whitney's GTF-related service and maintenance headlines have pressured sentiment in 2025-2026, but the market appears to be pricing headline risk more than the company’s ability to generate cash and to monetize long-cycle defense programs. RTX is trading near $195 today, reflecting a roughly $262 billion market cap and a premium multiple (about 39x trailing EPS). I think there is a pragmatic entry point for patient buyers who want to own an aerospace-and-defense cash engine while being explicit about the operational risks in commercial engines.
What RTX does and why the market should care
RTX is an integrated aerospace and defense conglomerate with four reportable segments: Collins Aerospace (airframe systems, avionics, interiors and aftermarket services), Pratt & Whitney (commercial and military engines), Raytheon Intelligence & Space (sensors, cyber, software), and Raytheon Missiles & Defense (missiles, air defense, integrated systems).
The market cares for three concrete reasons:
- Scale and backlog. Management reports a backlog around $260 billion, which gives multi-year revenue visibility and supports the sales base that exceeded $88 billion in 2025.
- Cash generation and balance sheet. Free cash flow near $7.94 billion and a moderate debt-to-equity of ~0.58 give RTX room to invest, pay dividends and repurchase shares even when one commercial unit is under pressure.
- Defense secular tailwinds. Elevated geopolitical risk and defense budgets underpin demand for RIS and RMD franchises, which helps offset variability in commercial aerospace.
Numbers that matter
- Market cap: roughly $262 billion.
- 2025 sales: reported above $88 billion.
- Free cash flow: $7.94 billion.
- Trailing EPS: ~$5.02, producing a P/E around 39x.
- Valuation multiples: P/S ~2.97, EV/EBITDA ~22.6, EV ~ $293.8 billion.
- Dividend: board declared a quarterly cash dividend of $0.68 per share payable 03/19/2026 (record 02/20/2026).
- Technicals: 10-day SMA ~$198.76, 50-day SMA ~$187.52, RSI ~50.8 (neutral), MACD indicating short-term bearish momentum.
Why the GTF situation is not a deal-killer
Public attention on Pratt & Whitney's geared turbofan (GTF) program has increased service and maintenance workloads for the company and for airline partners. RTX is responding with targeted investments: management committed $139 million at the Singapore Airshow to expand GTF maintenance facilities and capabilities, and the company secured multi-year service deals. Those are remediation and revenue-capture moves, not admission of a failing business model.
Importantly, while commercial engine issues can compress margins and increase warranty/service costs in the short term, RTX's diversified mix and a large defense backlog mean cash and profits do not hinge on a single technology. In other words: GTF headwinds matter, but they are visible and actionable — not existential.
Valuation framing
RTX trades at a premium: roughly 39x trailing EPS and EV/EBITDA near 22.6. Those multiples reflect a hybrid business with stable defense cashflows and cyclical commercial aerospace exposure. You are paying for durable defense earnings, aftermarket services that are sticky, and the optionality of Pratt & Whitney recovering GTF-related aftermarket revenue rather than losing it to third-party MROs or competitors.
Qualitatively, the premium is reasonable if the company converts backlog to revenue at steady margins and sustains free cash flow above $6-8 billion annually. The risk-reward deteriorates if the GTF issue meaningfully expands warranty costs, or if macro aviation demand weakens and airlines pull back on spares and MRO contracts.
Catalysts (what could drive the stock higher)
- Conversion of backlog into revenue and margin expansion across RIS and RMD driven by higher defense spending and contract awards.
- Pratt & Whitney demonstrating durable GTF repair volume monetization and narrowing service costs after recent investments and new MRO capabilities (e.g., Singapore expansion).
- Continued improvement in free cash flow and a clear cash-return plan (buybacks + dividend) that supports per-share metrics.
- Positive quarterly results that show commercial aftermarket stabilization and a better-than-expected margin profile.
Trade plan - actionable entry, stop, target and horizon
Thesis: Buy a tactical long to own RTX’s defense cash franchise and to capture recovery upside from Pratt & Whitney’s GTF servicing momentum. This is a disciplined, horizon-defined trade that accepts headline risk but bets on cash conversion and backlog monetization.
- Entry price: $192.00
- Stop loss: $180.00
- Target price: $220.00
- Horizon: long term (180 trading days) - expect this trade to take months to play out because backlog conversion, contract awards and GTF service ramp are multi-quarter processes.
Rationale: entry at $192 leaves room beneath near-term technical support (50-day SMA ~$187.5) while still close to current market levels. The stop at $180 limits downside and recognizes that a sustained break below $180 would likely signal deteriorating fundamentals or broader aviation weakness. The $220 target equates to about 12.5% upside from the entry and implies multiple expansion only modestly from current levels given earnings recovery; reaching $220 would likely require visible FCF expansion and evidence that GTF-related costs are waning.
Position sizing and risk management (practical)
Size the position so that the $12 per-share distance to stop represents no more than 1-2% of your total portfolio in dollar risk. Re-evaluate position at each quarterly report and after any major GTF or defense contract announcement; tighten stops if catalysts start to deliver ahead of schedule.
Risks and counterarguments
- GTF warranty/service cost escalation: If Pratt & Whitney's GTF service costs or on-wing reliability issues increase beyond expectations, margins and free cash flow could be materially hit. That would pressure shares even with a strong defense business.
- Commercial aviation demand shock: A macro slowdown that reduces flying hours, passenger demand or airline capex could compress aftermarket and engine sales volumes, hurting Collins and Pratt.
- Valuation vulnerability: The stock trades at nearly 39x trailing EPS. If growth disappoints or if institutional holders accelerate selling, a multiple contraction could more than offset operational improvements.
- Program execution and supply chain: Aerospace programs are complex; missed milestones, higher costs or supply constraints (e.g., chip shortages, materials) could hit margins and order fulfillment.
- Regulatory or geopolitical shocks: Export controls, sanctions, or procurement slowdowns in key markets could reduce international defense sales or complicate program execution.
Counterargument
One valid counterargument is that RTX’s premium multiple already prices in defense tailwinds and backlog conversion. If upcoming quarters show continued softness in commercial engine profitability or institutional investors aggressively trim positions, the stock could trade sideways or decline even as free cash flow remains positive. In that scenario, a patient long-biased investor might be better off waiting for clearer signs of margin recovery or a lower entry price.
Conclusion - clear stance and what would change my mind
I am constructive on RTX at the suggested entry because the company combines reliable defense cashflows and a sizeable backlog with concrete free cash flow that can offset commercial noise. The trade is explicitly conditional: buy at $192 with a $180 stop and a $220 target over a 180-trading-day horizon. That plan accepts headline volatility around Pratt & Whitney while giving the company time to monetize backlog, ramp GTF maintenance revenue, and return cash to shareholders.
What would change my mind: a sustained deterioration in free cash flow (below $4-5 billion annualized), clear evidence of broad commercial aviation demand collapse, or a material expansion of Pratt & Whitney warranty and remediation costs that meaningfully reduces EPS guidance would force me to reassess. Conversely, accelerating defense awards, faster-than-expected GTF servicing revenue capture and sequential margin improvement would lead me to add to the position or raise the target.
Trade plan reminder: entry $192.00, stop $180.00, target $220.00, horizon long term (180 trading days). Manage position size so the stop-loss risk aligns with your portfolio risk tolerance.