RTX公司

Second-quarter revenue grew 14% year on year to nearly $25 billion, with double-digit increases in aftermarket engine sales, original aircraft equipment deliveries, and missile-related sales. Adjusted segment profit rose 18% in the quarter, with margin expansion in each of the company's franchises.

Why it matters: RTX delivered another impressive result, with sales exceeding our forecast by a combined $2 billion and all three of the firm's franchises expanding their adjusted operating margins by at least 30 basis points. Pratt & Whitney's aftermarket revenue outstripped our forecast and continued a trend of double-digit expansion in that franchise, driven by high global aircraft utilization, especially among older jets as airlines await delayed newer models due to ongoing supply chain backups. A spike in demand for missile systems from the US and allied militaries is rolling through Raytheon's accounts as the company increases output capacity in preparation for new multiyear purchase agreements.

The bottom line: We've increased our fair value estimate for wide-moat RTX's shares to $214 from $200, reflecting some time value of money as well as a bump upward in our near-term forecasts.

Our $214 fair value estimate implies a price/2026 estimated earnings multiple of 29.7 times and an enterprise value/2026 adjusted EBITDA multiple of 17.8 times.

We see the most reliable drivers of profit growth at RTX coming from its large commercial businesses Collins and Pratt & Whitney. In both segments, aftermarket parts and service should provide many years of profitable and recurring revenue as overall demand for air travel grows. Pratt & Whitney's commercial segment has survived substantial headwinds resulting from the covid-19 pandemic. It is absorbing more than $3 billion of costs to replace high-pressure turbine and compressor disks in hundreds of its engines due to a metallurgical flaw, but we expect 2026 commercial sales at the business to be 72% higher than in 2019 due to ramping up deliveries of its GTF engine to Airbus and robust aftermarket activity on the previous generation V2500. Collins' commercial exposure has a significant component placement on the Boeing 737 MAX and continues to work through coronavirus aftereffects on the supply chain, but postpandemic demand brought Collins' top line to surpass 2019 levels in 2023, and we expect it to grow nearly 7% annualized over the next five years.

We're anticipating the firm's military revenue will grow at a 5.8% CAGR over our forecast period. On a segment-by-segment basis, the driving force behind that growth is F135 engine production in Pratt, aggregate US military spending in Collins, and increased emphasis on missiles, missile defense, and the militarization of space for Raytheon.

We also forecast continued margin expansion over the short and medium term, with operating margins normalizing north of 13%. The business we expect to deliver the highest absolute operating margin in our forecast, at 17.7% adjusted operating margin and accounting for over one third of consolidated operating profit, is Collins, where numerous projects are underway to consolidate back office and engineering systems, processes, technology, and the like to deliver cost savings over the long term. We see additional margin expansion potential at Pratt & Whitney, which we anticipate will benefit from both reduced negative margin on new commercial engine sales over time, as well as mix shift toward higher-margin service revenue.

We aren't anticipating major changes to the proportion of revenue that RTX will need to invest in capital spending over the long term and will normalize around 3% of sales in subsequent years. Pratt & Whitney will need to continue to reinvest in the business to ramp up the GTF engine production, and the legacy Raytheon business will need to continue increasing production capabilities.

We think an 8% weighted average cost of capital, somewhat higher than other defense primes, is justified for this business due to its exposure to commercial aerospace.

Each of RTX's Collins Aerospace, Pratt & Whitney, and Raytheon segments deserves its own wide moat.

Goodwill and intangibles on RTX’s balance sheet since 2020, the same year the pandemic marred profits in the company’s aircraft-related businesses, have depressed our measure of RTX’s recent returns on invested capital. We forecast a return to the mid-teens, half again as high as our 8% cost-of-capital estimate, persisting for at least the next two decades.

Aerospace suppliers recoup the development cost of their products over many years of servicing them with specialized and proprietary parts engineered to meet their originally certified specifications. Defense contractors often share upfront product development costs with the government and, once awarded a contract to produce it, also share some ongoing costs, such as pension provisions, with the customer. RTX's business portfolio fits well into these frameworks. Its relevant moat sources are intangible assets stemming from the substantial engineering know-how required to produce technically complex products and switching costs originating from the mission-critical nature of the products and their decades-long lifecycles.

We see the moatiest parts of the Collins business as highly engineered, mission-critical products such as avionics, landing gear, sensors, and flight controls. We think the primary moat source in this segment is switching costs because these products are deeply integrated into aircraft functions and are long-cycle products. Changing suppliers for mission-critical aircraft components requires substantial effort to redesign the aircraft, production delays for recertification, and updated maintenance procedures; since many such components are not a large portion of the aircraft's total cost, substituting them would not confer material savings. The majority of Collins' commercial revenue (not government- or defense-related) comes from aftermarket parts and services, accounting for as much as 40% of the segment's overall revenue. A large installed product base confers enormous benefits on incumbents in the form of recurring and predictable revenue streams, often at very high contribution margins, and presents a meaningful barrier for entrants, who would need to take on likely daunting losses to develop and market a product without any service revenue in the same category to maintain it. Historically, component providers have earned roughly 15%-20% margins, about double the 10% margins of the aircraft manufacturers. We forecast Collins steadily achieving operating margins north of 17%.

Pratt & Whitney competes in a duopoly with CFM to power the large and growing narrow-body jet market. Beyond the rarefied technical complexity of turbine engine design and manufacturing, customer switching costs stem from the strong integration of its engines into customers’ airframes and maintenance choices. About 44% of Airbus’ A320neo aircraft and 100% of the A220 regional jet will fly variants of Pratt’s PW1000 engine for their entire 25-30-year service life, but it isn’t sourced on Boeing’s 737 MAX. Pratt also has substantial and sticky military exposure as the sole engine producer for the F-35 fighter jet. Several times in a typical jet engine's life, maintenance and overhaul revenue can approach or exceed the net purchase price of a new one. Pratt & Whitney will not see quite the same volume as CFM in the narrow-body market, but we think the tailwinds behind this market are strong enough to propel both players to economic profits for decades to come. We’re secularly bullish on narrow-bodies because the global middle class demands air travel as economies grow, and developed markets need to replace older planes with less-efficient engines. We estimate the PW1000 fleet could more than double to over 20,000 engines by 2040, with recurring, profitable revenue streams from aftermarket parts and service spanning decades and likely exceeding $15 billion annually at maturity.

While missiles are expendable and stockpiles must be replenished regularly, we see durable switching costs in integrating them into longer-cycle products, such as launchers, ships, and aircraft, not to mention the importance of operating them as intended. Raytheon produces some of the most prolific and longest-serving missile systems, including Patriot, AIM, Stinger, and the Navy’s standard missile family. Customers tend to order these products in larger blocks, so the contractor must have substantial scale to meet customer needs. We believe the moatiness of the defense prime contractor industry is evident through the stability of its structure over the last 15 years: the top seven arms producers globally have remained Lockheed Martin, Boeing, Northrop Grumman, RTX, General Dynamics, BAE Systems, and Airbus. We also observe durable profit margins that do not swing with the general economic cycle, supporting Raytheon's wide moat and allowing it to reliably earn 12% operating margins over the last fifteen years.

We identify remote risks to RTX’s moat, which threaten material value destruction and its franchise, but are so unlikely to materialize within our 20-year forecast horizon that we do not model them. Any uncontained failure (that is, explosion) of a Pratt engine resulting from a systemic design or manufacturing flaw that cannot be remedied in the normal course of maintenance or recall would breach its moat, in our opinion. The possibility that technological innovation could make turbine propulsion obsolete, adopted faster than Pratt can adapt or co-opt it, could also undermine the company’s competitive position. If a lapse in its government contracting or production processes caused casualties or RTX’s exclusion from key defense programs, it would represent a product governance failure and could breach the company’s moat.

Pratt & Whitney’s placement on the A320 family and A220 aircraft should substantially increase the company’s installed base of engines in coming years, unlocking decades of high-margin servicing revenue.

The missile and missile defense segment makes products that are prioritized by the National Defense Strategy, which should lead to robust growth in the near term, at least.

RTX is well balanced between commercial aerospace and defense, which would partially insulate the firm from a downturn in either segment.

One of the driving factors behind the breakup of United Technologies was to create more-focused businesses. While the combined RTX is concentrated on aerospace and defense, it is still large and complex.

Boeing and Airbus have a vested interest in compressing the margins of their component suppliers, such as Collins.

Repairing manufacturing defects in some Pratt & Whitney engines has cost the company billions in compensation to customers and may reduce airlines' appetite for the products.