RTX Stock: Strong Q1 Results and Positive Outlook Amidst GTF Engine Challenges
RTX Corporation, previously known as Raytheon Technologies, reported impressive first-quarter results on April 23rd, surpassing expectations on both top and bottom lines. Despite facing multi-year disc replacement program related to the GTF engine issues, the company’s sales grew by 12%, driven by strong performance in its Collins Aerospace and Pratt & Whitney segments. Adjusted earnings per share increased by 10%, while GAAP EPS surged by 32%. This growth was partially attributed to share repurchases.
Collins Aerospace
saw its revenues grow 9%, driven by the commercial aftermarket and OEM sales, while defense remained relatively flat. Adjusted profits increased by 16%, with adjusted margins growing from 14.8% to 15.7%, primarily due to high commercial aftermarket volume.Pratt & Whitney
showed 23% growth in sales across all its end markets. However, adjusted profits declined due to higher R&D and SG&A expenses, partially offset by favorable volume and mix on military deliveries and commercial OEM sales.Raytheon
experienced 6% sales growth and 8% adjusted profit growth. Despite an unfavorable mix, margins expanded slightly as productivity efforts paid off and higher volumes provided a better base for fixed costs absorption.While the financial results do not reflect the full impact of the GTF engine crisis, the company expects things to progress according to plan, with the peak in aircraft on ground (AOG) occurring around this time. RTX is focused on increasing production capacity for the replacement discs and expanding engine shop visit capacity to minimize customer compensation.
RTX Earnings Outlook Are A Big Positive
For 2024, RTX anticipates organic sales growth in all its segments. Collins Aerospace is expected to post mid to high single digits growth, resulting in $650 million to $725 million higher profits. Pratt & Whitney will see low double-digits growth in sales and generate $400 million to $475 million in additional profits. Raytheon will experience low to mid-single digits sales growth, translating into $100 million to $200 million in operating profit growth. This will add $1.15 billion to $1.4 billion in total operating profits.
Is RTX Stock A Good Buy?
Despite being overvalued against its median EV/EBITDA multiple, RTX stock remains a buy with a $125 price target for 2024. The company has a strong backlog of $202 billion, including over 10,000 geared turbofans, a program with a multi-decade revenue tail. While near-term pressures exist as RTX addresses the GTF engine disc replacements, the company benefits from strong demand in commercial and military end markets and significant opportunities for improved fixed cost absorption and productivity gains. Overall, RTX Corporation stock remains attractive.
