RTX Defense Spending Tailwind Already Priced In Amid High Valuation and Political Risks

What happened

A Zacks article suggests RTX could benefit from proposed higher U.S. defense spending, potentially improving long-term funding visibility for major contractors. However, the DeepValue master report notes RTX trades at $186 with a P/E of ~37.8x, indicating the stock already prices in a defense supercycle and a $251 billion backlog. The report highlights critical risks, including political pressure from Trump's stance to curb dividends and buybacks, and ongoing GTF engine remediation costs that could depress free cash flow. Despite the spending optimism, RTX's valuation leaves little margin for error, with any disappointment in execution or policy shifts likely to compress multiples. Thus, this news reinforces rather than alleviates the cautious investment thesis outlined in the report.

Implication

The proposed defense spending increase offers a revenue tailwind, but RTX's high multiple implies much of this optimism is already baked into the stock price. Political risks, such as potential restrictions on capital returns, could limit shareholder value creation and trigger a de-rating. Ongoing GTF engine issues pose a threat to free cash flow targets, essential for sustaining dividends and buybacks. With crowded long positioning and a rich earnings multiple, any shortfall in guidance or policy enforcement could lead to significant price declines. Therefore, new investors should wait for a pullback below $160, while existing holders might trim positions to mitigate risk.

Thesis delta

The Zacks article does not shift the negative thesis; it simply echoes a positive catalyst that is already discounted in RTX's premium valuation. The master report's core concerns—overvaluation, political uncertainty, and execution risks—remain unchanged, reinforcing the 'POTENTIAL SELL' rating.