RTX stock price is firing on all cylinders: is it a good buy?

The RTX (RTX) stock price continued its robust surge as geopolitical tensions rose this week. It jumped to a fresh all-time high of $124.40 on Tuesday, bringing the year-to-date gains 50%, making it its best year ever. 

Other companies in the military industrial complex continued rising. Lockheed Martin soared to a record high of $611, bringing the year-to-date gains to over 36%. Similarly, companies like General Dynamics and Northrop Grumman continued their surge.

Geopolitical challenges rise

RTX is a leading player in the defense industry, where it has become a top merchant of military equipment. 

It operates its business in three key divisions: Collins Aerospace, Pratt & Whitney, and Raytheon. 

Collins manufactures many items in the aerospace and defense industry and provides aftermarket service. Its products are found in planes like the Boeing 777X and the 737 MAX.

Pratt & Wihitney is a big competitor to Rolls-Royce and GE Aviation in the jet engine industry. It makes engines that are used in civilian and defense aircraft like the F-35, Airbus A320.

Raytheon, manufactures various items used by the three arms of the military. Its products include Advanced Medium Range Air-to-Air Missiles (AMRAAM), StormBreaker, and Long Range Stand Off Weapon (LRSO). 

Altogether, RTX generates about 46% of all its sales from the US government and the rest to its international clients.

Therefore, the company has benefited substantially as the military spending has continued rising in the past decade. Data shows that the US government spent $693 billion in defence spending in 2010, a figure that has jumped to over $841 billion. Analysts expect that this spending will hit $1 trillion in the coming years. 

Iran and Israel crisis

The most recent catalyst for the RTX stock price was the decision by Iran to launch hundreds of ballistic missiles to Israel on Tuesday. It also coincided with Israel’s decision to launch a ground attack in Lebanon, a highly embattled country.

It did that to revenge the killing of Hezbollah’s leader last weekend. In a statement, Benjamin Netanyahu said that Israel will revenge for these missile attacks. 

Therefore, there is a risk that the region will see a prolonged conflict. Many analysts believe that Netanyahu’s goal is to ultimately have the US government launch attacks or even a ground operation in Iran.

At the same time, the war in Ukraine is continuing while tensions between the US and China have increased. Russia has warned that it may use its nuclear arsenal if Ukraine attacks it using Western-provided weapons.

There are also rising odds that China will attack Taiwan in the next few years, a move that will lead to more retaliation by the American government.

Therefore, RTX and other weapons manufacturers are expected to see robust demand in the coming years.

The companies will also benefit from the potential improved relations between Israel and Saudi Arabia. As part of the deal being negotiated, Saudi will have better relations in exchange of Western weapons. This is notable because it is one of the biggest spenders. It spent over $75 billion in 2023.

RTX earnings download

The most recent results showed that the RTX business continued growing in the second quarter. Reported sales rose by 8% to over $19.7 billion, while its adjusted sales were $19.8 billion.

Most importantly, RTX ended the quarter with a record backlog of over $206 billion. It added $24 billion in contracts in the quarter.

Pratt & Whitney’s organic sales rose by 19% to $6.8 billion, while Collins Aerospace’s sales rose to $7 billion. Raytheon’s sales retreated by 4% to $6.5 billon.

RTX expects its business to continue doing well this year. Its adjusted sales are expected to be between $78.75 billion and $79.5 billion, up from the previous guidance of between $78 billion and $79 billion. 

However, its free cash flow is expected to be $4.7 billion, lower than the previous guidance of $5.7 billion. This decline is likely because of the challenges in its Pratt & Whitney business, where its engines found some costly challenges.

RTX stock price analysis

The ongoing RTX stock surge has made it a highly expensive company that trades at a forward P/E ratio of 33. This premium is understandable because of the rising demand across all its businesses. It is also in line with that of other companies in the military industrial complex.

On the daily chart, we see that the RTX share price has surged from last year’s low of $66.8 to $124.40. It recently crossed the important resistance point at $124, its previous all-time high. By moving above that level, the stock invalidated the double-top pattern that was forming. 

It has remained above all moving averages and the Ichimoku cloud indicator. Therefore, the path of the least resistance for the stock is upwards, with the next point to watch being at $150.

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