Raytheon Technologies stock (NYSE: RTX) has seen a 10% rise this year, far better than the broader S&P500 index, down 17%. However, in the longer term, RTX stock is up 52% from levels seen in late 2018, underperforming the S&P 500 index, up around 60%.
This 52% growth for RTX stock since late 2018 can primarily be attributed to 1. Raytheon Technologies revenue growth of 90% to $66.0 billion over the last twelve months, compared to $34.7 billion in 2018, 2. an 11% fall in its total shares outstanding, driven by around $3 billion the company spent on share repurchases since the end of 2018, partly offset by 3. the company’s P/S ratio falling 29% to 2.1x trailing revenues, from 2.9x in 2018. Higher revenues and lower shares outstanding have bolstered the company’s revenue per share metric, which has risen 113% to $44.75 now, compared to $20.96 in 2018. Our dashboard on Why Raytheon Technologies Stock Moved has more details.
Raytheon has undergone significant restructuring over recent years. United Technologies merged with Raytheon to form Raytheon Technologies in 2020. Furthermore, it spun off its OTIS and Carrier businesses, making Raytheon purely an aerospace and defense-focused company.
Raytheon’s commercial airplane business was also hit during the pandemic weighing on its commercial OEM and aftermarket sales. This trend has now reversed, with both Pratt & Whitney and Collins Aerospace Systems segments driving the sales growth for the company over the recent quarters. This trend is expected to continue, with an expected multi-year recovery in travel demand. However, supply chain headwinds weighed on its defense business. Although the company lowered its 2022 sales outlook to be in the range of $67.0 and $67.3 billion, vs. prior estimate of $67.8 and $68.8 billion, it raised the lower end of its earnings forecast to now be in the range of $4.70 and $4.80, compared to $4.60 and $4.80 earlier, primarily due to a lower expected tax rate.
While the company saw its revenue surge over the recent years, its operating margin has declined slightly to 11.7% now, vs. 13.2% in 2018. Our Raytheon Technologies Operating Income Comparison dashboard has more details.
Given the recent rally in RTX stock, we believe it is appropriately valued now. At its current levels of around $93, it is trading at 2.1x its forward expected revenue of about $44.80 per share, compared to its last four-year average of 1.8x. A slightly higher multiple is justified, given that the company is expected to benefit from rising global travel demand. Also, the ongoing geopolitical tensions should bode well for its defense business. Still, we believe that investors will likely be better off waiting for a dip to enter RTX for better gains in the long term.
While RTX stock looks reasonably valued, it is helpful to see how Raytheon Technologies’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis and recent market volatility have created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Novanta vs. Abbott.
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| Returns | Nov 2022 MTD [1] |
2022 YTD [1] |
2017-22 Total [2] |
| RTX Return | -2% | 10% | 55% |
| S&P 500 Return | 2% | -17% | 77% |
| Trefis Multi-Strategy Portfolio | 5% | -18% | 223% |
[1] Month-to-date and year-to-date as of 11/15/2022
[2] Cumulative total returns since the end of 2016
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
