RTX Secures $22.9B Tomahawk Contract, Backlog Grows but Conversion Risk Remains

What happened

RTX announced a $22.9 billion contract to expand Tomahawk missile production, adding to Raytheon's already record defense backlog of $119 billion. This award aligns with the strong defense demand narrative but does not address the supply-chain and throughput constraints highlighted in recent filings. The contract likely spans multiple years and depends on annual appropriations, so near-term cash conversion may be limited. RTX trades at 37.9x earnings and 21.7x EV/EBITDA, already pricing in defense growth, so the news is not a game-changer for valuation. Investors should monitor whether Raytheon can actually ramp production without margin erosion from tariffs and component shortages.

Implication

For investors, this contract reinforces the defense demand thesis but does little to change the fundamental picture. RTX already has a record $289B total backlog, and the market has rewarded the stock with a 38% gain over the past year. The real question is not order intake but whether RTX can convert orders into revenue and free cash flow amid supply-chain friction, tariffs, and MRO bottlenecks. The current valuation leaves little margin of safety, and buying at these levels requires evidence of faster conversion in upcoming quarters. Until Q3 and Q4 2026 results confirm that Raytheon and Pratt are turning backlog into cash, we maintain a WAIT.

Thesis delta

The core thesis remains unchanged: RTX is a quality franchise with strong demand but fully priced at current levels. This Tomahawk contract adds to the defense backlog but does not address the key risks of conversion and margin pressure. We would need to see sustained free cash flow improvement and aftermarket strength before upgrading.