RTX's Raytheon Secures $1.7B Patriot Contract, But Valuation and Operational Risks Loom Large

What happened

RTX's Raytheon unit was awarded a $1.7 billion contract to supply Spain with four Patriot air and missile defense systems, marking Spain's largest Patriot order ever and adding to RTX's robust defense backlog of $218 billion. This win underscores RTX's entrenched position in critical missile defense programs, a key tailwind highlighted in the DeepValue report. However, the report flags RTX as a POTENTIAL SELL due to severe overvaluation, with shares trading at ~36x earnings and ~22.5x EV/EBITDA, far above a DCF-based intrinsic value of $46. The company continues to grapple with multi-year GTF engine remediation cash outflows of $1.1–1.3 billion in 2025 and over $1 billion in recent legal settlements, which cloud free cash flow visibility. Thus, while the contract bolsters near-term revenue, it does little to alleviate the core financial and operational headwinds driving the cautious stance.

Implication

The $1.7 billion award will provide incremental revenue and earnings over the delivery period, supporting RTX's Raytheon segment and highlighting ongoing demand for missile defense systems. It aligns with the DeepValue report's note on elevated NATO and allied defense spending as a tailwind, potentially boosting investor sentiment in the short term. However, this contract is already embedded in the backlog and does not materially alter the free cash flow trajectory, which remains pressured by GTF remediation costs and legal settlements. Given RTX's rich valuation, the stock offers minimal margin of safety, and any execution missteps in defense programs or new compliance issues could trigger significant de-rating. Therefore, investors should view this news as insufficient to justify the current premium or shift away from a cautious approach, emphasizing the need for improved cash generation and risk mitigation.

Thesis delta

This contract award confirms RTX's defensive strengths and backlog durability, but it does not shift the core thesis of overvaluation relative to cash flow and operational risks. It may provide temporary sentiment support, yet the fundamental concerns around GTF execution, legal overhangs, and premium multiples remain unchanged. Thus, the POTENTIAL SELL recommendation stands, as the news fails to mitigate the key risks identified in the DeepValue report.