Political Funding Cliff Keeps RTX a Wait Despite $350B Military Ask

What happened

President Trump called for immediate $350B military spending, but defense stocks including RTX fell as Senate votes appeared short ahead of a Dec 11 funding deadline. The selloff reflects market skepticism that the proposed spending will translate into near-term orders, given political gridlock and the risk of a shutdown or continuing resolution. RTX's latest 10-Q shows a $289B backlog and 12% sales growth, but its valuation at 37.9x earnings already prices in strong defense demand and conversion. The company's own filings warn of supply-chain disruptions and tariff pressures that could delay revenue and cash flow even if orders accelerate. Thus, the political headline highlights the gap between announced intentions and actual funded contracts, reinforcing the view that RTX's current price offers little margin of safety.

Implication

The funding push may eventually benefit RTX, but the market reaction shows that political timing is a major risk; until Congress acts, defense contractors face uncertainty. RTX's backlog and aftermarket strength provide some downside protection, but the stock's high multiple means it's vulnerable to any delay in defense conversion or aftermarket slowdown. The next two quarters will be critical: if Q3 and Q4 2026 show free cash flow within guidance and Raytheon sales growth above 15%, the thesis improves; if not, the stock could re-rate lower. With a Dec 11 funding cliff, there is potential for a government shutdown or continuing resolution that could disrupt contract awards and cash collections, adding to near-term risk. Therefore, we maintain a WAIT rating, with a more attractive entry near $195; long-term investors should monitor conversion metrics before adding.

Thesis delta

The core thesis remains intact: RTX's installed base and defense backlog are strong, but valuation already reflects most of the upside. The news of an unfunded $350B request reinforces the risk that defense budget promises may not translate quickly into orders, potentially delaying Raytheon's backlog conversion. No change to our WAIT rating, but we now place slightly more weight on political/appropriation timing as a near-term risk; we continue to require evidence of free cash flow conversion before becoming constructive.