RTX Corp: Strong Backlog, Soaring Valuation -- Is the Stock Still a Buy?

This article first appeared on GuruFocus.

RTX Corp is the world's largest aerospace & defense company, formed by the merger of Raytheon and United Technologies (Collins/Raytheon). With ~185,000 employees and 2024 revenues above $80 billion, RTX operates through Collins Aerospace (aircraft systems), Pratt & Whitney (jet engines), and Raytheon (defense electronics). The company enjoys a massive order backlog, $236 billion as of Q2 2025, reflecting 15% year-on-year growth. This backlog (split roughly 60% commercial, 40% defense) underpins RTX's near-term revenue visibility. Its business mix and technology portfolio (e.g., advanced missiles, engines, and avionics) give RTX broad exposure to secular trends in commercial aviation growth and rising defense budgets worldwide. RTX's Raytheon defense division supplies advanced weapons (e.g., ESSM missiles) to global militaries. The company's record backlog (now ~$236 B) and recent contract wins (for missile defense and fighter programs) highlight strong demand in its defense markets.

Q2 2025 Results Robust Growth and Beats

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In Q2 FY2025 (ended June 30), RTX delivered strong revenue growth and easily beat consensus. Reported sales were $21.6 billion, up 9% YoY, and above analysts' ~$20.6 B consensus. Adjusted EPS was $1.56 (up 11% YoY) on those revenues, handily above the $1.44 consensus. (GAAP EPS was $1.22, as $0.28 of acquisition accounting and $0.06 of restructuring charges were excluded from adjusted results.) Notably, net income (GAAP) jumped to $1.657 B in Q2 '25 from just $0.111 B a year ago, since last year's results were compressed by a ~$918 M legal settlement charge. On a profit-margin basis, GAAP net margin rose from ~0.6% in Q2 2024 to ~7.9% in Q2 2025 (again, due to the absence of the prior-year charge). Excluding one-time items, adjusted net income of ~$2.118 B was up 12%.

By segment: Collins Aerospace revenue was $7.622 B (up 9%); Pratt & Whitney was $5.955 B (down 12%, reflecting lapping prior quarters); Raytheon (defense) was roughly $7.0 B (up ~8%). Strength in the commercial aftermarket (aircraft service and parts) drove Collins' growth, while defense orders boosted Raytheon. The operating cash flow was $0.46 B (vs $2.73 B LY) and free cash flow was negative $0.07 B (due in part to a 4-week strike at Pratt in Q2). RTX returned $0.9 B to shareholders (dividends + buybacks) in Q2.

Short-Term Outlook Guidance & Tariff Headwinds

After Q2 results, RTX raised its FY2025 sales outlook while trimming profit guidance. Full-year revenue guidance was lifted to $84.75 Bn85.50 Bn (from $83.084.0 Bn prior), implying ~67% organic growth (vs ~46% prior). However, due to escalating tariffs on steel/aluminum, 2025 adjusted EPS guidance was cut to $5.805.95 (from $6.006.15). CFO Neil Mitchill noted that RTX expects $0.5 B of tariff costs in 2025, reflecting U.S. trade tensions. On the Q2 call, management said demand remained strong: We have not seen any major impact on our demand signals, Mitchill said. The company is focused on ramping production (especially for Pratt's high-demand GTF engines) to meet its sales guidance.

Story Continues

For the near term, analysts expect RTX to convert much of its backlog into revenue. The company reaffirmed free cash flow of $7.07.5 B for 2025, helped by cutting working capital due to backlog delivery. (Notably, Q2 free cash flow swung negative largely because of the Pratt strike and timing; these should reverse in H2.) Overall, the 2025 trajectory is positive: broad-based segment growth in Q2 and a big backlog suggest that revenues and profits will climb in H2, albeit with margin pressure from costs and tariffs.

Long-Term Growth Drivers Dual Aerospace & Defense Engine

Over the next 35 years, RTX's long-term outlook is underpinned by secular trends in both defense and commercial aviation. Geopolitical tensions are driving higher defense budgets (U.S. Pentagon, NATO allies, and others); for example, the FY2026 U.S. budget allocates billions to next-gen fighter (F-47/NGAD) and hypersonics programs. RTX's Raytheon unit is a major supplier for these (e.g., ESSM and Patriot missiles, advanced radars, and hypersonic weapons). According to analysts, RTX's defense backlog stands at ~$92 Bn, and U.S./European defense spending is growing ~57% annually into 2026. These long-duration, high-margin contracts provide stability and growth, especially in missile defense, electronic warfare, and air dominance systems.

At the same time, the commercial aerospace market is rebounding. Air travel has approached pre-COVID levels, and airlines are investing in new, fuel-efficient jets. RTX's Pratt & Whitney engines are central: the Geared Turbofan (GTF) engine has over 200+ firm orders for next-gen airliners and is valued for fuel savings. Pratt continues to address past quality issues (the recent engine inspections are winding down), and new programs (CFM LEAP competitor engines and military variants) are in development. Collins Aerospace, with its avionics and cabin systems, is poised to benefit from global modernization (e.g., a new FAA air traffic control upgrade bill). In summary, RTX's dual-engine model, combining a stable defense franchise with a cyclical commercial franchise, gives it a unique position. Its long-term R&D in emerging tech (hypersonics, directed energy, advanced propulsion, and digital systems) further underpins growth, though these are farther off.

Guru & Insider Activity Who's Watching RTX

Major value and defense-focused investors maintain sizable positions in RTX. For example, value fund managers have publicly praised RTX's business quality: FPA's Queens Road Value Fund noted that RTX's strong backlog supports its competitive advantage in aerospace and defense, and Dodge & Cox's commentary highlighted RTX's leadership in aerospace and defense innovation as a core investment theme. These quotes (from the funds' 2024 letters) underscore why long-term gurus hold RTX stock despite recent volatility. As of late 2025, none of the top guru hedge funds reported large open market trades in RTX suggesting holdings have been largely steady. Insider buying/selling has been limited; management did execute a modest 8% dividend increase in 2025 to signal confidence. In sum, well-known investors seem to view RTX as a foundational aerospace/defense pick, rather than a trading target.

Risks & Controversies

Investors should be aware of several key risks. First, trade and tariff headwinds are real: RTX expects ~$0.5 B of incremental materials costs in 2025 from U.S. tariffs. If trade tensions escalate further, RTX's margins could be pressured beyond current estimates. Second, Pratt & Whitney engine issues remain a concern. While 2025 saw improvements, RTX is still resolving a massive Geared Turbofan quality program (the last recall/inspection campaigns). In May 2025, Pratt workers even struck over pay/security, temporarily slowing production. Any prolonged disruption in engine output could delay aircraft deliveries and revenues.

Third, legal and regulatory matters still echo in the background. (For context: in Q2 2024 RTX took ~$1.35 B in charges to settle legacy investigations.) While most of that litigation is now behind RTX (deferred prosecution agreements were reached in 2024), smaller issues remain (e.g. export-control agreements) that could entail payments. That said, a recent Bloomberg Law report noted RTX won dismissal of a shareholder suit over past engine defects, suggesting regulatory risks have largely stabilized.

Valuation Forward P/E vs. Historical Norms

RTX stock currently trades at a premium valuation relative to its historical average. The forward P/E (2026 consensus EPS) is around 27.4 (as of Oct 2025). By contrast, its five-year average forward P/E is about 19.5. In other words, RTX is trading significantly above its historical norm. This high valuation reflects the strong earnings growth (projected mid-teens % annual EPS growth) and defensive, high-barrier markets it serves. For comparison, peers in aerospace/defense often trade in the teens forward P/E (GE, Boeing, Lockheed, etc.). The high P/E suggests that the market is pricing in robust future growth and justifying a premium for RTX's backlog and technology leadership. Investors should note, however, that at its current price (~$166 on Oct 3, 2025), the stock may be rich: one analysis shows RTX being overvalued at this forward multiple vs its history.

Conclusion

RTX Corp stands at the forefront of aerospace and defense, backed by a growing $236 B backlog and strong market positions in engines and advanced weapons. Its recent earnings (Q2 FY2025) showed healthy revenue growth and beat expectations. The near-term outlook is positive, albeit with caution on costs: 2025 sales guidance was raised while profit guidance was trimmed for tariffs. In the long run, expanding defense budgets and recovering commercial air travel should drive RTX's growth, capitalizing on its dual-engine business model and technological capabilities. However, investors must weigh these strengths against high valuation and persistent risks (tariffs, engine issues, legacy liabilities). Overall, RTX's leadership in critical industries suggests a constructive outlook the stock's premium multiple reflects lofty expectations, so execution in the coming quarters will be key. As one analysis concludes, RTX offers a rare combination of stability, growth, and strategic foresight, but prospective buyers should align that promise with the current price.

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