RTX Corporation (RTX) operates three major business segments that together cover a significant portion of modern military equipment and commercial aviation infrastructure.
Raytheon produces missiles, munitions, and radar systems, while Pratt & Whitney designs and manufactures aircraft engines, including the GTF engine powering much of the global narrow-body commercial fleet.
Collins Aerospace rounds out the portfolio with avionics, cabin systems, and components serving both military and commercial aircraft customers across the world.
In Q2 2026, RTX delivered results that were difficult to argue with, posting sales of $24.7 billion, up 16% organically and nearly 8% ahead of analyst expectations.
Adjusted EPS of $1.89 beat the $1.66 consensus estimate by 14%, and free cash flow reached $2.9 billion in the quarter alone, underscoring the strength of the underlying business.
Management responded by raising full-year adjusted sales guidance to between $95 billion and $96 billion, EPS guidance to between $7.10 and $7.25, and free cash flow guidance to between $8.5 billion and $8.75 billion.
The company’s backlog hit a record $289 billion, up 22% year over year, with Raytheon posting a book-to-bill ratio of 2.4, meaning it booked $2.40 in new orders for every dollar it shipped.
The stock jumped 7.3% on earnings day, briefly pushing RTX toward $227 and nearly recovering the entire spring drawdown before momentum reversed sharply.
Two factors hit the stock simultaneously after its post-earnings surge: management flagged an estimated $850 million in tariff headwinds for the year, and signs of a potential US-Iran ceasefire began reducing geopolitical premium from defense stocks broadly.
RTX now sits at a 14.77% drawdown from its year high, almost entirely erasing the gains that the Q2 beat had delivered, a notable move for a stock carrying a beta of just 0.29.
The $289 billion backlog is worth examining closely, as it represents more than ten quarters of revenue already contracted at the current run rate, providing unusual forward visibility for investors.
The $119 billion defense portion reflects sustained demand from NATO members still in the early stages of rebuilding military capacity, while the $170 billion commercial portion reflects the ongoing global air travel recovery and a large GTF engine maintenance cycle.
The first domestic GEM-T missile order in over 30 years landed in Q2 2026, a concrete signal of how dramatically the defense demand environment has shifted in recent years.
Free cash flow compressed to $4.5 billion in 2024 as the company worked through costs related to the Powder Metal Matter, a quality issue affecting certain Pratt & Whitney GTF engines that required significant inspection and remediation programs across the fleet.
The jump to $7.9 billion in 2025 reflected the business returning to its natural free cash flow generation capacity once those charges cleared the financials, and full-year 2026 guidance of $8.5 billion to $8.75 billion would represent another meaningful step higher.
At 26x forward earnings, RTX is not inexpensive by historical defense sector standards, though the Street’s consensus target of around $234 implies roughly 22% upside from current levels.
The 1.5% dividend yield adds a modest income component while investors wait for the gap between the current price and analyst targets to close over time.
A mid-case valuation analysis lands at a price target of around $243 over approximately 4.3 years, implying roughly 26% in total return at around 5.7% annualized, with revenue growing around 5.7% annually and EPS growing around 7% per year.
The bull case centers on what the backlog implies for coming years, as a business with $289 billion in contracted revenue, FCF on track for $8.5 billion to $8.75 billion, and three segments growing double digits organically represents a durable compounder for patient holders.
The bear case starts with the multiple, as paying 26x forward earnings for a defense and aerospace business leaves limited cushion if the $850 million tariff headwind worsens, geopolitical tensions ease further, or European defense budgets unexpectedly pull back.
