RTX Q2 2026: Strong Results, But $289B Backlog Not Enough to Justify Valuation

What happened

RTX reported Q2 2026 sales up 11.7% and operating profit up 28.3% year-over-year, driven by Pratt & Whitney's 25% commercial aftermarket growth and Raytheon's 18% sales increase on missile-defense programs. Total backlog reached $289 billion, including a defense backlog of $119 billion, but filings still warn of supply-chain disruptions in rare earths, microelectronics, and tariffs that could pressure estimates-at-completion. Despite the robust demand, the stock trades at 37.9x earnings and 21.7x EV/EBITDA, which the DeepValue report flags as fully priced with no margin of safety at the current $217.90 share price. The Seeking Alpha article concurs with a HOLD rating, citing the backlog fortress but demanding patience until conversion into free cash flow is proven. Management reaffirmed 2026 guidance of $8.50–$8.75 billion free cash flow, but conversion risk remains the key variable rather than order intake.

Implication

Investors should avoid chasing RTX above $235, as the current valuation already prices in strong aftermarket and defense demand. The next two quarters will test whether the $289 billion backlog converts into cash at the guided $8.50–$8.75 billion free-cash-flow level, particularly with Pratt MRO capacity additions and Raytheon delivery acceleration. A break below $195 would provide a more attractive entry, but a failure to reaffirm guidance or worse-than-expected EAC charges would signal a deeper problem. The high backlog and liquidity provide downside support, but the lack of margin of safety means the risk-reward is unfavorable for new money at this price. Monitor Q3 and Q4 2026 free cash flow, Pratt aftermarket growth staying above 10%, and Raytheon book-to-bill conversion.

Thesis delta

The thesis remains unchanged: RTX is a quality business with durable installed-base advantages, but the market has already priced in most of the near-term upside. The Q2 2026 results are consistent with the WAIT rating, as strong demand is offset by valuation risk and unresolved supply-chain and tariff headwinds. No new information from the article materially alters the investment case; it reinforces the need for patience and a better entry point.