RTX Corporation Is In The Right Place At The Right Time

seekingalpha04-06

RTX Corporation had a strong 2023, with almost $75 billion in adjusted sales and 11% growth in sales.Collins Aerospace saw $7 billion in quarterly sales, driven by a reliable commercial segment.Pratt ...

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MikeMareen RTX Corporation (NYSE:RTX), formerly Raytheon, is a massive aerospace and defense conglomerate with a market capitalization of $130 billion. The company has some of the strongest defense technology in its portfolio on the planet. As we'll see throughout this article, the company's assets combined with the geopolitical market make it a valuable investment. RTX Corporation 2023 Performance The company had a strong 2023, highlighting the size of its business, with almost $75 billion in adjusted sales.   Raytheon Investor Presentation The company with a $130 billion market cap ($98 / share) had $5 / share in adjusted EPS and $5.5 billion in free cash flow, or FCF. That's a P/E of ~20, a very reasonable yield, given how the company has been growing at double digits. The company saw 11% growth in sales and thanks to fixed cost 18% in adjusted profit. Its defense business remains strong, despite slower growth. The company has a $196 billion backlog, multiple years of revenue, and has continued to see strength here. We're in between on the company's capital return program being substantially above its FCF and see it as a risk longer term, but overall the company has performed quite well. Collins Aerospace Collins Aerospace is an aerospace and space company with its hands in all kinds of technology.   Raytheon Investor Presentation The company saw $7 billion in quarterly sales here, also up by double-digits YoY, with again the commercial segment carrying what was relatively weak military growth. The business' almost $30 billion in annual sales has more than $4 billion in annual profit, which is exciting given that it's driven by a reliable commercial segment. The business has continued to perform incredibly well and we expect continued reliable growth. Pratt & Whitney Pratt & Whitney is the second largest plane engine manufacturer in the world and the manufacturer of some noteworthy engines such as the F-35.   Raytheon Investor Presentation The company reported $6.4 billion in sales in the most recent quarter, with double-digit YoY growth. The company's sales growth was supported by much stronger growth in the commercial segment, with minimal growth in its military segment. Additionally, the company's operating profit grew faster than its revenue showing the fixed costs in its business. The company's annualized profit for this segment is $1.6 billion adjusted, a strong business all by itself. Raytheon The company's Raytheon division has had weaker growth in sales, but that's not surprising for a government business.   Raytheon Investor Presentation There has been some great news recently about the company's SM6 missile intercepting ballistic missiles in the terminal phase. That's one of the biggest concerns about the U.S. government's force projection and the threat of \"carrier killer\" missiles. Success here shows how Raytheon continues to be at the forefront of modern technology. The company's modest revenue growth saw even faster growth in operating profit (8% YoY growth). The company continues to have massive bookings and backlogs including billions in classified bookings, with a $52 billion backlog. We expect this business to continue to outperform. 2024 Outlook The company's 2024 outlook shows continued growth in a strong business, a growth rate that justifies a higher valuation.   Raytheon Investor Presentation The company is forecasting $78.5 billion in sales, with 7.5% organic sales growth. Adjusted EPS is forecast to be ~$5.35 with $5.7 billion in FCF, which means ~6% EPS growth and ~4% FCF growth. Those are weaker than the company's sales growth, which is not always exciting to see. However, the company is continuing to invest heavily as it grows. More so the Pratt & Whitney Powder Metal issue is having a massive impact in 2024 ($1.3 billion). The company expects this total issue to cost $7 billion, however, it's an affordable cost that we expect will clear up in the upcoming years. Once it's cleared up, it'll lead to an even faster boost in the company's FCF. Thesis Risk The largest risk to our thesis is U.S. government defense spending, a massive amount of spending that is unpopular among many constituents. While a world filled with conflict continues to justify that spending, there's a chance that in the long-term a \"peace dividend\" for the United States could hurt the growth of Raytheon's military segment and long-term returns. Given that Raytheon's valuation depends on growth, this is an important risk. Conclusion RTX Corporation trades at a higher valuation, but the company has an impressive portfolio of assets. The company has multiple divisions each the leader in their field, with commercial revenue especially growing quite quickly. The company's Pratt & Whitney powder metal issue is an unfortunate mistake, but one we expect the company can handle.  RTX Corporation's overall growth remains strong and the company forecasts high single-digit growth in 2024, with strong earnings despite the powder metal issue. We expect this growth combined with the company's strong earnings to result in significant long-term shareholder returns. Let us know your thoughts in the comments below.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2425984415"}