How High Can RTX Stock Go?

Needless to say, the geopolitical landscape has heated up significantly over the past few years. In addition to nation state skirmishes, the geopolitical situation has seen a couple of wars that have significantly taken their toll. In times of such strife, the defense industry comes into focus, particularly how countries are spending their money in the defense sector.

Notable aerospace and defense name RTX Corporation (NYSE:RTX) is on the receiving end of the demand from governments as evidenced by the company’s share price rising close to 50% over the past year.

The gains in recent months have been more nominal so is the stock showing signs of weakness now? 

The Deal with Defense Spending

The U.S. is the biggest defense spender among all the countries in the world by a wide margin. In 2023, it spent $916 billion, which made up for over 40% of the global defense spending.

The Department of Defense has highlighted that it has a whopping $1.5 trillion in budgetary resources available to allocate. This also made up 15.5% of the fiscal 2025 U.S. federal budget. From this reserve, the agency has planned to spend $375.31 billion in total obligations, or about 25% of the total budgetary resources.

There is also some expectation of a possible shakeup after the recent presidential election. President Trump came back into power, and that should lead to a domino effect for the defense sector. Roman Schweizer, who is a defense analyst with TD Cowen, forecasts that Trump’s re-election as President will translate into higher defense spending. Schweizer cited support for higher top lines among Republican leaders on the Defense committees for this.

On the contrary, five heavyweights in the NATO alliance, Germany, France, Britain, Italy, and Poland, came together to say that, although they would like to increase their defense budgets and keep up with Trump’s 5% of overall economic output, the spending target would be rich for them. This comes at a time when countries are extending their support to Ukraine and trying to strengthen Ukraine’s own weapon production capacity.

Raytheon Free to Fly After Settlements

Of course, as one of the leading defense contractors in the U.S., Raytheon, which goes by RTX now, remains at the crux of defense spending developments. In fact, the company is widely considered as a leader among the contractors, maybe half a step behind Lockheed Martin. Everything from missile defense systems to cybersecurity solutions falls under RTX’s hood.

But its expertise has not stopped the company from facing some issues of its own. Late last year, Raytheon decided to pay more than $950 million to settle U.S. Department of Justice investigations. In addition, the company also agreed to pay more than $124 million to settle charges filed by the U.S. Securities and Exchange Commission. Management did point out that these alleged misconducts occurred prior to 2020, possibly implying that it has put it behind itself.

The company is also seemingly taking a cautious approach. Raytheon’s CEO Christopher Calio pointed out that it would be open to pruning its business rather than rushing into transformative deals. Calio also pointed toward its divestment of the Goodrich Hoist and Winch business.

The leadership team has also been in the process of calibrating production rates for this year and beyond with plane-maker Boeing. Raytheon is also taking quality quite seriously after there were issues around its GTF engines.

Raytheon’s Dividend Story

Since 2020, the Board of Directors has increased RTX’s annual dividend each and every year. The company last paid a quarterly dividend of $0.63 per share in December. At this rate, the dividend amounts to $2.52 per share annually and yields 2.03% on the prevailing share price.

The payout ratio sits at a fairly modest 44.44% meaning that shareholders don’t have to fret about the reliability of the dividend anytime soon. The sturdiness of the dividend payouts are evident from the 7.3% annualized growth rate too.

Raytheon Sales Up

RTX reported sales up 8.5% for the past quarter on a year-over-year basis and posted an impressive $2.49 billion in earnings before interest and taxes on the $21.6 billion in sales.

For the past 12 quarters in a row, every single quarter has revealed a steady rise in revenue on a yearly basis. Overall the company posts top line revenues of around $80 billion and nets about $5 billion in annual profits from that.

Better yet for the long-term holders, the stock doesn’t typically display a ton of volatility and the steady increase in dividends year after year goes along way to helping investors stick with it.

How High Can RTX Stock Go?

RTX share price has another 10.1% to go to the upside if analysts are right having calculated fair value at $141.55 per share. That’s more optimistic than a discounted cash flow forecast analysis might suggest at $130 per share.

For those who keep an eye on other metics like the price-to-earnings ratio relative to growth, RTX might actually be undervalued. The PE ratio is elevated now at 36x but 16.5% growth in earnings over the next 5 years is a high number for such a large company and suggests there is still opportunity for new buyers.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.