$RTX Long
Clear Skies Ahead.
I still remember the jolt in late 2023 when RTX Corporation (NYSE: RTX) – the aerospace and defense behemoth formerly known as Raytheon Technologies – dropped like a rock. News had broken of a serious issue with Pratt & Whitney jet engines, grounding jets and rattling investors. RTX’s stock plunged to around $77 a share, its lowest in over two years. As someone watching from the sidelines, it felt like witnessing a fighter plane hit turbulence. Fast forward to September 2025: RTX’s stock has doubled off those lows, recently hovering near an all-time high around $158. The company has not only survived the storm – it’s soaring at high altitude again. Now the big question is whether this defense giant still has room to run over the next year. In this long thesis, I’ll break down why I believe RTX remains a compelling long-term play, balancing optimism with a good dose of realism for us retail investors.
Riding the Wave of Defense Demand
Raytheon Technologies’ presence at international events like the 2023 Paris Air Show underscores its global role in aerospace and defense. It’s no secret that the world has gotten more volatile, and defense budgets are rising as a result. RTX is sitting right at the intersection of this trend. The company boasts a staggering $236 billion order backlog for its defense and aerospace products – up 15% from a year ago. That backlog isn’t just a vanity metric; it’s future revenue locked in, reflecting strong demand for everything from Patriot missile systems to jet engines. In fact, RTX’s portfolio reads like a checklist of high-priority military programs. Take the U.S. Air Force’s Next-Generation Air Dominance (NGAD) fighter initiative: the FY2026 Pentagon budget earmarks $3.5 billion for NGAD, a program RTX is deeply involved in. Or consider hypersonic weapons, the Pentagon set aside about $802 million for hypersonic missile development, another field where RTX is a leading player. These are cutting-edge, big-ticket projects that can turn into steady cash flows for years to come.
Geopolitical realities mean such opportunities keep expanding. The war in Ukraine, ongoing tensions around the world – these have prompted the U.S. and its allies in Europe to open their wallets. Defense spending on both sides of the Atlantic is projected to grow around 5–7% annually through 2026, supporting a rising tide for contractors like RTX. We’ve already seen U.S. and NATO countries racing to replenish weapon stockpiles depleted by aid to Ukraine. Raytheon’s products have been front and center in that conflict – its Stinger anti-air missiles and Javelin anti-tank missiles (co-produced with Lockheed) became household names early in the war, and its Patriot air defense batteries and NASAMS systems have shielded cities from missile attacks. This real-world “combat testing” has only boosted global demand. As RTX’s CEO Greg Hayes noted back in 2023, the company had already received about $2 billion in orders to replace munitions sent to Ukraine and anticipated ~$2.5 billion more over the following year. And that’s just the beginning: multi-year Pentagon contracts are now being put in place to bolster production of these munitions, giving RTX long-term commitments that stabilize its manufacturing. In plain English, RTX’s defense business is riding a powerful wave – one built on real urgent needs, not just speculative projects.
Importantly, this industry isn’t easy for new players to disrupt. Building jet engines or missile systems isn’t like launching a new app. Decades of engineering know-how, deep customer relationships, security clearances, and massive scale give firms like RTX a moat. They operate in an arena where governments prefer tried-and-true partners. High barriers to entry mean RTX doesn’t face a swarm of upstart competitors nibbling at its business. This sets the stage for RTX to continue capitalizing on defense spending trends with relatively limited competitive pressure.
Navigating the Engine Turbulence
All that said, RTX’s flight path hasn’t been perfectly smooth. The ghost at the banquet is Pratt & Whitney’s GTF jet engine fiasco – an episode that could fill a management case study on industrial nightmares. Here’s what happened: in mid-2023, RTX revealed a manufacturing flaw in certain Pratt & Whitney geared turbofan (GTF) engines, caused by microscopic contaminants in a metal powder used for engine parts. It sounds almost trivial, but the impact was anything but. The company had to recall or inspect 600 to 700 engines on Airbus A320neo jets, far more than initially expected. Each engine fix that was supposed to take 60 days could now take up to 300 days, meaning hundreds of airplanes grounded waiting for engines through 2024 and into 2025. Talk about a costly curveball.
For a while, it seemed like RTX’s aerospace ambitions were going up in smoke. In September 2023, management warned of $6–7 billion in total costs to address the GTF issue, including a hefty $3 billion accounting charge taken that quarter. They slashed their free cash flow forecast for 2025 from $9 billion down to about $7.5 billion to account for the expenses and customer compensation. If you were an investor then, it was a punch to the gut: free cash flow is the lifeblood for a company like this, funding dividends, buybacks, and growth. Not surprisingly, RTX’s stock tanked on the news (that ~$77 low we mentioned earlier).
Here’s the silver lining: RTX absorbed the hit and managed to keep the core business on track. Greg Hayes – who was CEO at the time – and the team acted quickly to support airline customers and contain the damage. By the company’s own update, the engine recall, while painful, was not expected to derail sales or profit margins in 2025; it was largely a timing and cash flow problem. Indeed, RTX confirmed that 2025 sales and operating margins should remain intact, even as an extra $1.5 billion in cash goes out the door to fix these engines. In other words, the aerospace division took a knock, but it’s still standing – and airlines still need Pratt & Whitney engines over the long haul. Most of the affected engines are being handled in 2024 and 2025, so by 2026 this chapter could be essentially closed. Pratt & Whitney will then get back to what it should be doing: delivering next-generation engines (like the geared turbofan, which despite this issue is an innovative fuel-efficient design) and generating steady aftermarket revenue from servicing all those engines in use.
For RTX as a whole, successfully navigating this crisis tells me something about management’s resilience. Every big company faces unexpected problems; how they respond is the real test. RTX chose to bite the bullet – taking charges, revising forecasts – rather than sweep things under the rug. They’ve been transparent that fixing the GTFs will pinch near-term cash flow, but they’ve planned for it. And notably, they didn’t lose key customers over it; Airbus and airlines are upset, sure, but Pratt & Whitney remains one of only two major suppliers (the other being GE) for a huge swath of aircraft. It helps that RTX’s overall business is diversified, with the defense side currently booming. The engine troubles, while significant, are gradually becoming yesterday’s news as investors refocus on RTX’s strengths.
Strong Earnings and a Stable Outlook
Despite the drama, RTX’s financial performance lately has been rock-solid. The company has strung together a series of earnings beats that show its operational strength. For the second quarter of 2025, RTX reported revenue of $21.58 billion, up 9% year-over-year and comfortably ahead of analysts’ expectations. Adjusted earnings came in at $1.56 per share, about 9% above consensus estimates – marking yet another quarter where RTX beat the street. In fact, over the past year RTX hasn’t missed a single earnings estimate, and management seems to have a habit of under-promising and over-delivering. Not a bad habit from an investor’s perspective.
Digging into those Q2 results, one thing stands out: demand is strong across the board. The company even nudged up its full-year revenue guidance for 2025 to roughly $85.1 billion (midpoint), slightly higher than earlier forecasts. When a giant like RTX (with sales in the tens of billions) raises guidance, even modestly, it tells you that things are going better than planned. The defense segments – missiles, radar systems, military avionics – are likely contributing heavily to that growth, given the geopolitical tailwinds we discussed. The commercial aerospace side (Pratt & Whitney engines and Collins Aerospace components) is also benefiting from the post-COVID recovery in air travel, though it’s simultaneously working through those GTF recall costs.
It’s worth noting that RTX did trim its 2025 earnings per share (EPS) outlook slightly, by about 3%, and the culprit wasn’t the engine recall this time – it was tariffs. Yes, old-fashioned trade tariffs. The company faces roughly a $500 million cost impact in 2025 from higher tariffs on things like aerospace components. Rather than pretend it isn’t happening, RTX factored this into their profit guidance (hence the small EPS cut). The good news is management has been proactive on this front too – leveraging supply chain tweaks and even tax credits to offset some of the pain. Tariffs are a headache, but hardly a thesis-breaker in this case. RTX still expects to generate about $7.5 billion in free cash flow in 2025 after all the dust settles. To put that in perspective, $7.5B is roughly a 3.7% FCF yield on the current market cap – not amazing, but remember it’s after eating the engine recall costs and tariffs. As those drag factors fade in 2026, free cash flow should ramp back up, potentially heading toward $9B+ annually if all goes well.
A quick look at other fundamentals shows a company in decent financial health. RTX carries a moderate amount of debt (about 60% debt-to-equity) and ample liquidity, which it has managed prudently through the crisisainvest.com. Its profit margins are in the high single digits, which actually trails some pure-play defense peersainvest.com. Why the lag? Largely because the commercial aerospace businesses like engines have slimmer margins than, say, stealth fighter contracts. This means there’s room for improvement – as the commercial side recovers and as RTX executes on high-margin defense programs, blended margins could creep upward. Meanwhile, shareholders are getting a small bonus in the form of dividends. The stock yields about 1.8% at current prices, which isn’t going to make you rich overnight, but it’s a nice token of stability (and honestly, in today’s market a stable dividend payer in the defense sector is welcome in many portfolios).
Valuation and Market Expectations
Whenever a stock is hovering near record highs, it’s fair to ask: Is there any upside left? At around $158 per share, RTX is valued at roughly 25 times forward earnings. That’s a richer valuation than some other industrial and defense names, which tells me the market has already recognized RTX’s strengths to a degree. The average Wall Street analyst price target is basically right around the current price (~$159). Out of 21 analysts, 16 rate it a “Buy” and 5 say “Hold,” with zero sells – a pretty strong vote of confidence, but also a signal that this isn’t some undiscovered gem. In fact, a few analysts who are really bullish peg RTX’s value in the $180s, while the most cautious see it in the $120s. That’s a wide spread, reflecting different views on how certain risks and rewards will play out.
My take is that RTX still has room to climb, but we should keep our expectations grounded (no pun intended). This isn’t a get-rich-quick moonshot; it’s a steady compounder. If things go right, a year from now we could plausibly see RTX trading in the upper end of those analyst ranges – perhaps around $180 a share, give or take. That would imply roughly 15% appreciation from current levels, plus the ~2% dividend yield, so maybe ~17% total return. Not bad for a big company in a defensive sector. Where would that upside come from? Partly from earnings growth as those massive backlogged orders convert into sales. Remember that $236B backlog – as it gets delivered, each quarter’s revenues and profits should march higher. Also, I suspect the market will reward RTX once the Pratt & Whitney saga is fully in the rear-view mirror. Right now, some investors might be hesitant, thinking “what if there’s another shoe to drop?” By late 2026, if RTX demonstrates that the engine issue was a one-time ordeal and free cash flow is improving, we could see a bit of multiple expansion (i.e. investors willing to pay an even higher earnings multiple) or at least maintain the current multiple on higher earnings.
One could argue that a 25x multiple is already baking in a lot of good news, and I agree to an extent. However, consider that many tech companies trade far higher with less certainty in their outlooks. RTX, for all its high-tech weaponry, is a boring cash-generating machine at heart, with considerable predictability due to long-term contracts. The market often assigns premium valuations to that kind of stability – just look at how utility-like some defense stocks have become for investors seeking shelter from economic swings. Moreover, the company’s consistent performance (100% EPS beat rate recently) builds a bit of trust that maybe those official forecasts are on the conservative side. If RTX keeps beating expectations and raising guidance incrementally, even the skeptics might warm up and revise their targets upward.
In short, I see RTX’s valuation as reasonable given its unique position, though not a screaming bargain. It’s the kind of stock you might not get for 15x earnings unless something goes seriously wrong. Sometimes you have to pay up for quality and resilience, and RTX offers plenty of both.
Key Risks and What Could Go Wrong
No thesis is complete without examining what could burst our bubble. RTX may be a giant with momentum, but it’s not invincible. Here are a few key risks and how I think about them:
Another technical fiasco: The Pratt & Whitney engine problem was a harsh reminder that aerospace is a complex business. Could there be another unforeseen manufacturing flaw or a design issue in RTX’s products? It’s possible. Pratt & Whitney is developing advanced new engines (for example, for future Airbus or military programs) – any hiccup there could spook investors again. Similarly, if one of RTX’s missile systems or defense products had a high-profile failure, that would hurt. The mitigating factor is that RTX has now demonstrated an ability to deal with a crisis, and its diversification means one product problem doesn’t sink the whole ship. But as shareholders, we have to keep an eye on the quality control front. Aerospace is unforgiving of errors.
Defense budget swings: Yes, the defense upcycle looks strong now. But politics can be unpredictable. A year from now, if we see a push for peace or a change in U.S. administration priorities, defense spending growth might slow or specific programs could get cut. It’s happened before (think post-Cold War drawdowns). RTX’s broad portfolio gives it some cushion – for instance, even if one program gets axed, others likely proceed – but a general budget tightening would be a headwind. That said, given the current geopolitical climate, a sudden peace dividend seems unlikely in the next year. There’s bipartisan consensus in the U.S. on countering certain threats, and allies in Europe and Asia are increasing their defense budgets too. Still, it’s something to watch beyond our one-year horizon.
Valuation and sentiment: As discussed, RTX isn’t super cheap. If the overall stock market hits turbulence – say, interest rates spike further or there’s a recession – high-multiple stocks like RTX could see their valuations compress. Investors might rotate out of aerospace/defense if, for example, peace talks in Ukraine gain traction (thus denting the urgency for new weapons orders). Also, any earnings miss or soft guidance from RTX would probably punish the stock more than usual, since folks expect it to beat estimates consistently. In other words, the bar is set high. A single quarter of disappointment or cautious commentary could knock the stock down in the short term.
Execution and integration: RTX is a product of big mergers (the Raytheon-United Technologies tie-up in 2020) and ongoing integration of various divisions. Managing a colossal company with ~180,000 employees worldwide is challenging. There’s always risk of something slipping – maybe a delay in delivering on that huge backlog, or cost overruns on a development program. For instance, high inflation or supply chain snarls could erode profit margins if not managed tightly. So far, RTX’s leadership has shown “operational discipline,” as some analysts put itainvest.com, but we cannot take flawless execution for granted every year.
To sum up the risks: none of these are hidden gotchas – they’re the typical concerns you’d have with any aerospace & defense investment. In my view, RTX’s overall profile – diversified, well-run, and crucial to its customers – helps balance these risks, but it doesn’t eliminate them. I’d advise staying alert to news on these fronts.
Final Thoughts: Why I’m Long RTX
RTX isn’t the kind of stock that will make you brag at a cocktail party about a ten-bagger gain. It’s a steady compounder in a sector that, frankly, has become essential. I often think of investing in RTX like owning a piece of a very large, slowly turning flywheel. That flywheel – powered by decades of R&D, government relationships, and a world that unfortunately isn’t getting more peaceful – generates a reliable stream of revenue and earnings year after year. Sometimes it turns a bit faster (as defense orders surge), sometimes a bit slower (as commercial aerospace hits a snag), but it keeps turning.
What gives me confidence looking out one year (and beyond) is that RTX has navigated one of its toughest tests (the engine recall) and emerged on the other side with its growth story intact. The company is delivering on new contracts, innovating in next-gen technologies, and executing on its core programs. Even at its recent high price, RTX offers exposure to trends that have legs: military modernization, air travel recovery, and the push for more advanced defense systems globally. It also offers a touch of income and a proven track record of returning cash to shareholders through dividends (and potentially buybacks down the road).
I’ll admit, as a thematic investor I have a bit of a soft spot for companies like RTX. They make real things – jets, missiles, radars – that have tangible impact. And they tend to be less volatile than the latest Silicon Valley darlings, which helps me sleep at night. Owning RTX is not about chasing hype; it’s about patience and conviction in a business with deep roots. Over the next year, I expect RTX to continue its climb methodically. We’ll likely see ongoing revenue growth as that $236B backlog turns into sales. We’ll see improved cash flow as the Pratt & Whitney issues get resolved and don’t drain resources as much. We may even see some headline-grabbing new deals (perhaps a major international arms sale or a breakthrough contract in space systems – areas where RTX has been active). Each quarter that passes with solid execution will, in my view, reinforce the bullish case and could inch the stock toward that ~$180 target that top analysts have set.
To be clear, I’m not expecting RTX to double again – the easy money from the 2023 lows has been made. My position is about 500bps. But I do see a scenario where RTX provides a respectable return with comparatively lower risk. It’s the kind of stock I’d feel comfortable holding through choppy markets because its business has a certain all-weather quality. Governments don’t suddenly cancel fighter jets or missile defense programs because inflation is high or consumer spending is down. In a way, RTX is tied more to the geopolitics and security outlook than to the economic cycle, and that’s a diversification benefit in a portfolio.
In conclusion (I promise this is the only time I’ll say that), being long RTX today is a bet that this battle-tested giant will continue to execute and capitalize on the strong defense cycle. It’s a bet that the worst of its setbacks are behind it, and that the coming year will bring incremental wins – maybe not flashy, but meaningful – that justify a higher stock price. I believe that’s a bet worth taking. After all, clear skies are the perfect setting for this former high-flyer to continue its climb.
Sources: The analysis above incorporates information from RTX’s financial reports and news updates, including Reuters and Investopedia coverage of the Pratt & Whitney engine recall, RTX’s Q2 2025 earnings highlights from StockStory, and a defense sector outlook noting RTX’s $236B backlog and growing military demand. These sources reinforce the view of RTX as a fundamentally strong company benefiting from current defense spending trends, while also acknowledging the impact of recent challenges like the engine inspections and tariffs. I have cited specific references inline throughout this thesis for any investor who wants to dig deeper into the facts and figures behind my assertions. Here’s to informed investing and a hopeful (and profitable) journey with RTX over the next year