RTX's Bullish News Clashes with Valuation and Risk Concerns

What happened

A recent Seeking Alpha article advocates a buy rating for RTX, citing record backlogs, $85.5B TTM revenue, and structural demand in aerospace and defense. However, the DeepValue master report reveals that RTX's stock has surged 53% over 12 months, now trading at a premium 36x forward P/E and 22.5x EV/EBITDA. The report highlights volatile free cash flow, ongoing GTF engine remediation costs of $1.1-1.3B in 2025, and recent legal settlements exceeding $950 million. A DCF analysis based on recent FCF history suggests an intrinsic value of approximately $46 per share, far below the current price of around $179. This disconnect indicates that market optimism may be overlooking significant operational, compliance, and budget risks embedded in the business.

Implication

The bullish article underscores RTX's robust backlog and growth prospects, but deep-seated issues like GTF remediation, legal liabilities, and high leverage temper the investment appeal. At current multiples, the stock prices in flawless execution, leaving minimal margin for error amid ongoing technical and regulatory risks. Free cash flow remains volatile, with net debt/EBITDA at 3.1x adding financial strain, while defense budget uncertainties and tariff exposures pose additional threats. Without clear resolution of these risks, the risk/reward profile is unattractive, suggesting trimming or avoiding new positions. Investors should monitor GTF progress and cash flow trends closely before considering entry, as the valuation offers little downside protection.

Thesis delta

The new article reinforces RTX's operational strengths but does not alter the fundamental valuation concerns and risk factors highlighted in the DeepValue report. Investors should maintain a skeptical stance, as the stock's premium pricing exacerbates downside risk if GTF remediation costs escalate or compliance issues resurface.