Last Update06 Oct 25Fair value Increased 1.20%
Analysts have raised their price target for RTX, increasing the fair value estimate by approximately $2 to $166.56. They cite stronger-than-expected recent earnings, robust momentum across segments, and improving outlooks on tariffs and defense spending.
Analyst Commentary
Recent Street research highlights both bullish momentum and ongoing risks for RTX, as evidenced by multiple price target increases and evolving sector views. Analysts’ perspectives reflect heightened optimism on the company’s prospects, which is counterbalanced by a few lingering concerns.
Bullish Takeaways- Bullish analysts have raised their price targets for RTX, pointing to strong execution and better-than-expected performance across all three operating segments.
- Momentum in the aerospace and defense sector is seen as a continuing trend. RTX is benefiting from robust demand and sector-wide tailwinds.
- An improved outlook on tariffs for 2025 has contributed positively to full-year financial guidance. This has supported higher valuation estimates.
- Increased mandatory U.S. defense spending and renewed commitments from NATO countries are expected to drive further growth for RTX’s defense-related businesses.
- Some bearish analysts are moderating their estimates on RTX’s 2025 earnings due to anticipated headwinds from tariffs and product mix.
- Despite improved guidance, there is caution regarding EPS growth. Expectations point to a slightly lower 2025 adjusted EPS number compared to earlier forecasts.
- Analysts note that the broader U.S. defense sector may present mixed results this earnings season, suggesting variability in near-term execution for companies like RTX.
What's in the News
- The Pentagon is urging missile suppliers such as RTX to significantly boost missile production. Senior Pentagon officials are meeting defense industry leaders to plan for increased future demand, particularly due to concerns over tensions with China (Wall Street Journal).
- Defense Secretary Pete Hegseth has called an urgent meeting of top U.S. military commanders in Virginia, underlining heightened focus on national security and defense readiness. This could impact major contractors like RTX (Washington Post).
- European airports experienced delays after hackers targeted Collins Aerospace software systems, a business owned by RTX, resulting in widespread disruptions to check-in and boarding for major airlines (Reuters).
- The U.S. government is moving to allow broader international sales of advanced military drones. This shift is likely to benefit defense contractors such as RTX by opening new global markets (Reuters).
- China has restricted exports of critical minerals essential for defense manufacturers, including RTX, causing Western companies to search for alternative sources and potentially impacting production timelines (Wall Street Journal).
Valuation Changes
- The Fair Value Estimate has increased slightly from $164.58 to $166.56.
- The Discount Rate has risen marginally from 8.08% to 8.09%.
- The Revenue Growth expectation has edged up from 5.37% to 5.38%.
- The Net Profit Margin has improved from 9.08% to 9.30%.
- The Future Price-to-Earnings (P/E) Ratio has declined modestly from 31.84x to 31.47x.
Key Takeaways
- Expanding defense contracts and strong commercial aerospace performance position RTX for sustained revenue growth and improved margins across core business segments.
- Strategic focus on technology investments and portfolio optimization is driving higher profitability, better capital allocation, and increased resilience against operational risks.
- RTX faces major risks from tariff volatility, jet engine cost overruns, dependence on defense budgets, commercial aviation headwinds, and an inflexible fixed-cost structure.
Catalysts
About RTX- An aerospace and defense company, provides systems and services for the commercial, military, and government customers in the United States and internationally.
- Robust and growing backlog, highlighted by a 1.86 quarter book-to-bill ratio, $236 billion backlog (up 15% year-over-year), and major new international contracts (e.g., EU, MENA, Asia-Pacific) indicate RTX is well-positioned to benefit from sustained increases in global defense spending and heightened geopolitical tensions, setting up strong visibility for future revenue growth.
- Accelerated ramp in both commercial aerospace OE and aftermarket (mid-teens aftermarket growth and high single digit OE growth expected for the year), combined with persistent low aircraft retirement rates and expanding air travel in emerging markets, are driving higher recurring revenues and margin expansion in RTX's commercial segments-supporting future earnings growth.
- RTX's ongoing investment into proprietary digital platforms, autonomy, and AI-demonstrated by new partnerships (e.g., Shield AI) and operational adoption to increase shop productivity-positions the company to capture higher-margin, tech-driven defense and aerospace opportunities, which should improve long-term margins and pricing power.
- Strategic portfolio optimization, with divestitures of non-core assets (e.g., $1.8B sale of actuation business and $765M sale of Collins Simmonds Precision Products), is sharpening RTX's focus on core aerospace and defense, improving capital allocation and return on invested capital, and freeing balance sheet capacity for further innovation, all of which are likely to drive higher net margins and free cash flow over time.
- GTF engine fleet management improvements, rising MRO output, and successful supply chain stabilization for both OE and aftermarket (e.g., 22% Y/Y improvement in PW1100 MRO, ongoing introduction of higher-durability GTF Advantage/Hot Section Plus), enable RTX to reduce costly engine AOGs and warranty drag, unlock higher aftermarket profitability, and minimize downside risk to operating margins and earnings.
RTX Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming RTX's revenue will grow by 5.3% annually over the next 3 years.
- Analysts assume that profit margins will increase from 7.4% today to 9.1% in 3 years time.
- Analysts expect earnings to reach $8.9 billion (and earnings per share of $6.72) by about September 2028, up from $6.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $7.7 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.7x on those 2028 earnings, down from 33.0x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 34.4x.
- Analysts expect the number of shares outstanding to grow by 0.57% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.09%, as per the Simply Wall St company report.
RTX Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Ongoing exposure to elevated and unpredictable tariff costs-despite mitigation efforts-remains a significant headwind, and further tariff escalations or trade tensions could materially compress operating margins and free cash flow.
- Persistent risks of jet engine reliability and aftermarket cost overruns, especially at Pratt & Whitney (GTF and V2500 programs), could lead to unanticipated warranty expenses, higher provisioning, and ultimately hurt net margins and earnings growth.
- Heavy reliance on government and defense contracts exposes RTX to potential revenue volatility if U.S. or allied defense budgets are reduced, delayed, or reprioritized away from large hardware projects to alternative defense spending like cyber or software solutions.
- Structural challenges in commercial aviation-such as possible long-term slowdown in new aircraft demand, rising environmental regulation, or shifting ESG investor priorities-could weaken the sustainability of high-margin aftermarket recurring revenue and impact topline growth.
- High fixed-cost structure, ongoing restructuring at Collins, and the need for continuous large-scale investment in capacity, R&D, and supply chain resilience mean that any stagnation or negative turn in volume trends would significantly erode operating leverage, impacting both profitability and free cash flow.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $163.842 for RTX based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $180.0, and the most bearish reporting a price target of just $134.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $97.7 billion, earnings will come to $8.9 billion, and it would be trading on a PE ratio of 31.7x, assuming you use a discount rate of 8.1%.
- Given the current share price of $151.75, the analyst price target of $163.84 is 7.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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