RTX RTX

Research status: Primary-source verified through Q2 2026. Valuation basis: $222.97 closing price on 14 August 2026.

RTX offers the broadest commercial-aerospace and defence mix among the proposed primes. Q2 sales rose 14% to $24.7B, adjusted EPS increased 21% to $1.89, free cash flow was $2.9B and backlog reached $289B, split $170B commercial and $119B defence. Management raised 2026 adjusted EPS guidance to $7.10–7.25 and free-cash-flow guidance to $8.50–8.75B. The business quality and backlog are strong, but the shares trade at roughly 31x midpoint adjusted EPS—an unusually full valuation for an aerospace and defence compounder still managing Pratt & Whitney engine obligations. RTX is a useful diversifier, but current expected return supports patience or a very small starter rather than a full position.

Investment case

RTX combines Collins Aerospace systems, Pratt & Whitney engines and Raytheon defence electronics and missiles. The commercial businesses benefit from large installed fleets and decades of aftermarket revenue; defence franchises benefit from qualification, classified technology, installed architectures and replenishment demand. The mix reduces dependence on any single procurement cycle.

The variant perception is that commercial aftermarket growth, Pratt margin recovery and sustained defence demand can lift free cash flow faster than revenue. The opposing case is that the market already prices a large portion of that recovery, while engine inspection/compensation obligations, supply constraints and fixed-price defence programmes can absorb cash and create unexpected charges.

Verified operating baseline

• Q2 2026 sales: $24.71B, up 14% reported and 16% organically.
• Q2 GAAP EPS: $1.57; adjusted EPS: $1.89, up 21%.
• Q2 operating cash flow: $3.5B; free cash flow: $2.9B.
• Backlog: $289B, comprising $170B commercial and $119B defence, up 22% year over year.
• Collins Q2 sales: $8.21B; adjusted operating margin: 16.7%.
• Pratt & Whitney Q2 sales: $8.89B, up 16%; adjusted operating margin was 8.3%, with commercial aftermarket up 25%.
• Full-year 2026 outlook increased to $95–96B adjusted sales, 8–9% organic growth, $7.10–7.25 adjusted EPS and $8.50–8.75B free cash flow.
• RTX agreed to sell Blue Canyon Technologies for $620M, continuing portfolio simplification.

Valuation scenarios

PowerFund scenarios based on $222.97 on 14 August 2026. EPS is adjusted/normalized and dividends are excluded.

24 months

Probability-weighted working value: approximately $247, or 5.3% annualised, before dividends.

60 months

Probability-weighted working value: approximately $331, or 8.2% annualised, before dividends. Portfolio value is primarily resilience and factor diversification, not maximum upside from today's price.

• Pratt & Whitney inspection and compensation obligations declining while fleet utilization and shop throughput improve.
• Commercial aftermarket maintaining double-digit growth across Collins and Pratt.
• Defence bookings and missile production converting the $119B defence backlog into margin and cash.
• Free cash flow reaching the raised $8.50–8.75B range with lower abnormal engine cash use thereafter.
• Collins and Pratt margin expansion from productivity, pricing and mix.
• Divestiture proceeds and cash returns reducing per-share valuation over time.
• Supply-chain recovery improving engine and systems deliveries without excess inventory.

• Pratt engine liabilities: powder-metal inspections, customer compensation and shop capacity can consume more cash or last longer than expected.
• Supply chain: castings, electronics, skilled labour and suppliers can constrain deliveries and margins.
• Programme accounting: fixed-price defence development and production can generate charges.
• Commercial cycle: airline traffic, aircraft production and customer solvency affect original equipment and aftermarket demand.
• Customer concentration: Airbus, Boeing and the U.S. government possess substantial bargaining power.
• Geopolitical/export risk: sanctions, export controls and programme approvals can delay revenue.
• Valuation: approximately 31x current adjusted EPS leaves little room for ordinary execution setbacks.
• Capital intensity: working capital, engine concessions and capacity investments can delay accounting earnings conversion.

Warning — investigate and freeze additions

• Free-cash-flow guidance falls below $8B or Pratt-related cash costs extend materially beyond the disclosed plan.
• Pratt adjusted margin falls below 7% after the current recovery period.
• Commercial aftermarket growth falls below 7% while airline traffic remains healthy.
• Defence backlog declines for two quarters without conversion into proportional sales.
• Forward P/E remains above 28x while expected EPS growth falls below 10%.

Reduce — normally trim 25–50%

• Incremental Pratt charges or customer compensation exceed $2B beyond current reserves/plans.
• Adjusted EPS or free-cash-flow guidance is reduced by more than 10%.
• Supply constraints cause multi-quarter delivery deterioration across at least two segments.
• Raytheon programme charges become recurrent and reduce segment margin below 9%.
• Aftermarket pricing or shop-visit economics weaken structurally.

Invalidate — exit unless a documented exception is approved

• A core engine platform suffers a safety or technical defect that permanently impairs fleet economics or market share.
• RTX cannot convert its installed base and backlog into durable free cash flow after abnormal engine costs subside.
• Repeated programme and quality failures demonstrate ineffective engineering or contract controls.
• Commercial and defence franchises both lose material share across a normal cycle.
• Accounting, controls or reserve evidence makes programme profitability unreliable.

RTX's moat comes from certified aerospace content, a vast installed base, long-lived engine and avionics programmes, defence intellectual property and global service infrastructure. Aftermarket economics create recurring cash once aircraft and engines enter service.

GE Aerospace, Safran, Rolls-Royce, Honeywell, L3Harris, Lockheed Martin and Northrop compete by product and programme. Boeing, Airbus and government customers retain high bargaining power. RTX should be judged by installed-base utilization, shop economics, programme margin and cash conversion—not backlog alone.

1. Maintain a Pratt powder-metal ledger covering inspections, aircraft-on-ground, compensation, reserves and quarterly cash use.
2. Split backlog into commercial OE, aftermarket and defence, including expected conversion years.
3. Track Collins, Pratt and Raytheon margins against volume, pricing, productivity and programme charges.
4. Reconcile adjusted EPS to free cash flow after working capital, concessions, capex and restructuring.
5. Compare valuation and expected returns with LMT, NOC and GD before assigning a defence-sleeve weight.
6. Require a higher return hurdle before scaling at a premium multiple.

Next scheduled review: Q3 2026 results; earlier following a Pratt technical, reserve or cash-cost update.