RTX Corporation (RTX)
Aeroespacial y defensa
The world's largest aerospace and defense supplier, with a backlog equal to three times annual sales and the Pratt & Whitney aftermarket engine just beginning to deliver — but trading near its high, at a multiple that already discounts much of that improvement.
- Price
- $209.84
- Intrinsic value (5y, base)
- $258
- Total annual return (5y)
- 5.8%
- Status (nominal)
- Fairly valued
- Margin of safety
- +6%
The essentials
- Three segments with distinct economics: Collins Aerospace (33% of sales, 16.3% margin, commercial aftermarket), Pratt & Whitney (36%, 7.9%, engines with the GTF fleet entering its overhaul cycle), and Raytheon (31%, 11.5%, defense by contract).
- Backlog of $289,000M as of the second quarter of 2026 — three times annual sales: projected growth is contracted, not extrapolated.
- The company raised its full-year guidance twice: adjusted sales to $95,000-96,000M (organic +8% to +9%), adjusted earnings per share to $7.10-7.25, and free cash flow to $8,500-8,750M.
- GAAP operating profit understates the economics: amortization of intangibles from the Rockwell Collins and Raytheon acquisitions subtracts about $2,100M a year with no cash outflow.
- Share repurchases are suspended (just $50M in 2025) while merger-related debt is paid down; invested capital fell from $95,700M to $89,400M over a year and a half.
- Return on invested capital is 11%, above the 10% bar and understated by the merger goodwill weighing on the denominator.
Intrinsic value — two valuation methods
Total return at 5 years: 5.8%/year = 4.2% appreciation + 1.6% dividend. The target price ($258) is ex-dividend; the $18 in dividends collected over 5 years are added separately.
The methods disagree: one places the value today above the price ($210) and the other below.
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $210 trades ~5.8% below its value discounted to today (~$223); the discount is positive but does not reach the margin of safety we require (≥38%).
At 5 years — En valor: the target price ($258) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.
The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$140.
Thesis
The business
RTX is a high-quality business with an identifiable improvement engine. Return on invested capital is 11.4%, above the 10% bar, and that is despite the invested capital carrying the price paid in the merger with Raytheon: the denominator includes the goodwill and intangibles of a scale acquisition, so the figure understates the profitability of the ongoing operation.
The engine for the next decade is GTF aftermarket. A fleet of more than 2,600 aircraft entering its overhaul cycle is high-margin service revenue on an already-installed cost base, and that is why the segment's margin — 7.9% today — has room to run. The $289,000M backlog supports the projection with signed contracts rather than extrapolated trend.
The valuation
Each segment is valued at its own multiple, because the three economics differ: Collins at 20 times operating profit for its commercial aftermarket, Pratt & Whitney at 18 times for the engine franchise and its margin recovery, and Raytheon at 14 times because a defense contractor trades below commercial aerospace. The resulting blend is approximately 17.8 times, within the sector's 15-to-22-times range and below the 19 times that a pure aftermarket franchise commands.
On that basis the five-year value is $258 against a price of $210, a total return of +6% annually (+4% from price and +2% from dividend). The stock trades today at 23× adjusted operating profit; by year five that entry point compresses to 15×.
The margin of safety
It trades close to intrinsic value, far from the required margin of safety. The maximum price to pay today to achieve the 15% annual return that defines a great investment is well below the current quote: the stock is within 1% of its 52-week high, after the company raised guidance twice during the year.
The verdict is Fairly valued. The arithmetic is transparent: the business compounds well — sales grow and margin expands with the aftermarket — but the entry multiple being paid already prices in that improvement, and compression toward the terminal multiple eats up much of the growth. This is not a discount thesis; it is an excellent franchise at a reasonable price.
What to watch
Three things would invalidate the case. The first is execution at Pratt & Whitney: margin recovery from 7.9% is the model's single most sensitive assumption, and a second quality episode like the powder metal issue would wipe it out.
The second is the defense budget cycle. A third of sales depends on government decisions, and exposure to fixed-price contracts means the company absorbs cost inflation.
The third is the multiple itself. At this valuation the thesis has no room for disappointment: if organic growth reverts to the mid-single-digit range before the margin expands, compression from the current multiple to the terminal multiple produces a negative return.
Educational / informational. Does not constitute investment advice.