EU and US could reach trade deal this weekend - Reuters
On Tuesday, TD Cowen analysts expressed a positive outlook on RTX Corp. (NYSE:RTX), raising the price target to $155 from $142, while maintaining a Buy rating on the stock. The analysts highlighted RTX’s potential for margin expansion at its RTN/P&W divisions, its low relative valuation, and the peaking of GTF "AoGs" as key factors supporting the company’s favorable position.
Despite acknowledging that the second quarter’s free cash flow (FCF) expectations might be overly optimistic due to timing issues, the analysts remain confident in the company’s long-term prospects. They pointed out that the consensus estimate of $1.6 billion for Q2 FCF is likely too high, primarily because of two timing-related factors: the payment of tariffs and the impact of a recent strike. InvestingPro analysis shows the company generated $5.45 billion in levered free cash flow over the last twelve months, maintaining a moderate debt level with a debt-to-equity ratio of 0.7. For deeper insights into RTX’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
RTX previously indicated on their Q1 earnings call that the company’s "net" tariff EBIT headwind for calendar year 2025 is estimated at $850 million, with a potential 15% higher impact on FCF, totaling approximately $1 billion. The analysts at TD Cowen expect a significant tariff-related cash headwind of over $400 million in Q2, as opposed to later quarters, due to tariffs being paid on new inventory well in advance of sales and duty drawbacks.
Furthermore, the strike that began on May 4 at the Middletown and East Hartford facilities—which manufacture GTF, F135, and legacy Pratt widebody engines—adds pressure to Q2 FCF. The strike is anticipated to reduce engine deliveries by more than 25% compared to pre-strike forecasts, translating to a considerable cash headwind that could exceed $300 million, depending on when the strike concludes.
On a positive note, the analysts mentioned that recent tariff reductions by the Trump administration may offer some relief against the anticipated $850 million EBIT headwind. The new price target of $155 is based on 21.3 times the estimated calendar year 2025 EV/EBITDA, reflecting the firm’s confidence in RTX’s financial performance and growth potential. InvestingPro data reveals RTX’s current EV/EBITDA ratio stands at 16.17x, with the company showing strong momentum through a 27.16% price return over the past year. Additional InvestingPro Tips highlight RTX’s position as a prominent player in the Aerospace & Defense industry, with analysts predicting continued profitability this year.
In other recent news, RTX Corp has been in the spotlight with several significant developments. The company reported the delivery of its first AN/TPY-2 radar to the U.S. Missile Defense Agency, featuring a fully populated Gallium Nitride array to enhance its missile defense capabilities. Additionally, RTX’s subsidiary Raytheon (NYSE:RTN) secured a $580 million contract from the U.S. Navy for the production of the Next (LON:NXT) Generation Jammer Mid-Band system, which will also be supplied to the Royal Australian Air Force. In other defense-related news, Qatar has become the first international customer for Raytheon’s FS-LIDS system, acquiring counter-drone capabilities valued at $1 billion.
Furthermore, RTX Corp received an upgrade from Benchmark analysts, who raised the stock rating from Hold to Buy, with a new price target of $140. This upgrade reflects positive impacts from the "Peace Through Strength" campaign and improvements in the aerospace sector. RTX, as part of a broader economic collaboration, was involved in commercial agreements between the U.S. and Qatar, which include significant defense and infrastructure deals. These agreements, valued at over $243 billion, are expected to boost American job creation and economic growth.
Truist has also identified several companies, including Northrop Grumman (NYSE:NOC) and Kratos Defense (NASDAQ:KTOS) & Security Solutions, that could benefit from the Golden Dome defense program, which L3Harris, Lockheed Martin (NYSE:LMT), and RTX are rumored to be involved in. These developments highlight RTX’s significant role in advancing defense technology and strengthening international partnerships.
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