RTX Corporation (NYSE: RTX) came under scrutiny on Mad Money after a caller asked host Jim Cramer to explain why the defense and aerospace giant’s stock has been sliding lower.
Cramer pointed directly to the Federal Reserve’s rate-hiking cycle as the primary driver behind the pressure on high-multiple stocks like RTX.
“Okay, here’s what’s happening. We’ve been looking at companies that have high price-to-earnings multiples, and we’ve been shrinking them,” Cramer said during the September 16 episode.
He explained that as the Fed raises rates, investors become less willing to pay elevated multiples for future earnings, creating a natural headwind for premium-valued stocks.
“As the Fed raises rates, the multiple that people pay for earnings will go down. Right now, it’s 27 times earnings. In a rate cycle where the Fed is raising rates, that PE multiple… has to come down. And that’s why that stock is going lower,” Cramer said.
The Federal Reserve announced a 25-basis-point increase in the target range for the federal funds rate on September 16, lifting the range to 3.75%-4.00%.
RTX posted second-quarter sales of $24.7 billion, representing a 14% year-over-year increase, while adjusted earnings per share rose 21% to $1.89, reflecting strong underlying business momentum.
The company raised its full-year 2026 adjusted EPS outlook to $7.10-$7.25 and its free-cash-flow outlook to $8.50-$8.75 billion, signaling confidence in continued growth across its defense and commercial aviation businesses.
RTX’s backlog reached $289 billion during the second quarter, up 22% year over year, a figure that underscores enormous long-term demand but also highlights the execution challenge the company faces.
At the Morgan Stanley 14th Annual Laguna Conference on September 15, Morgan Stanley analyst Kristine Liwag described converting industry demand into revenue as “a pain point for the industry with constrained supply.”
RTX CEO Chris Calio, who reaffirmed that the company remained on track at that conference, said RTX was addressing supply constraints through investments in factories, automation, and its supply chain.
The combination of a premium valuation and the need to execute against a massive backlog leaves the stock with limited cushion if earnings growth disappoints or slows unexpectedly.
Hedge fund positioning data tracked by Insider Monkey, which monitors more than 1,000 hedge funds, showed 92 funds held RTX at the end of the second quarter, down from 95 in the prior quarter.
Fisher Asset Management was the top hedge fund shareholder among those tracked, holding approximately 22.9 million shares of RTX as of the most recent reporting period.
RTX’s short interest remains relatively subdued at roughly 0.9% to 1% of the float, suggesting the broader market is not aggressively betting against the company despite valuation concerns.
Cramer’s warning centers less on RTX’s business fundamentals and more on the mechanical effect that rising interest rates tend to have on stocks trading at elevated price-to-earnings ratios.
