A Wells Fargo analyst not too long ago raised the corporate’s worth goal for RTX (NYSE: RTX) inventory to $151 from a earlier goal of $140 and maintained an “obese” score on the inventory. As such, it represents a 31% premium to the present worth, however is the brand new goal warranted?
The case for RTX inventory
The Wall Avenue consensus has RTX producing $8.4 billion in free cash flow (FCF) in 2026, which, primarily based on the present market cap of $153 billion, would put RTX on a price-to-FCF a number of of 18.2 instances 2026 FCF — the Wells Fargo analyst makes the same argument primarily based on earnings.
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As you possibly can see under chart, a few of its aerospace and protection friends commerce on considerably larger multiples proper now, and hitting the worth goal of $151 would put RTX on a price-to-FCF a number of of slightly below 24 instances FCF in 2026.
RTX Price to Free Cash Flow information by YCharts.
The bullish case is supported by a superb yr for RTX because it largely overcame the GTF engine inspections situation, and glorious aftermarket gross sales helped overcome weak point in unique tools (OE) gross sales because of disappointing airplane manufacturing at Boeing and Airbus. As well as, RTX’s protection enterprise Raytheon improved adjusted working revenue margins in each reported quarter of 2024 to date.
Picture supply: Getty Photographs.
Is RTX inventory a purchase?
That mentioned, relative valuation arguments are harmful if the entire sector is overvalued and protection inventory valuations look stretched. The business stays challenged by the U.S. authorities’s try to power fixed-price growth packages onto protection firms, and there is not any assure that the present elevated spending ranges will proceed in an business historically seen as a low single-digit grower.
Should you imagine there’s nothing basic to alter the view that RTX’s protection enterprise will return to a low single-digit development price, then the above valuations usually are not low-cost sufficient to justify a $151 worth goal.
Don’t miss this second likelihood at a probably profitable alternative
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Proper now, we’re issuing “Double Down” alerts for 3 unimaginable firms, and there is probably not one other likelihood like this anytime quickly.
*Inventory Advisor returns as of January 6, 2025
Wells Fargo is an promoting accomplice of Motley Idiot Cash. Lee Samaha has no place in any of the shares talked about. The Motley Idiot has positions in and recommends L3Harris Applied sciences. The Motley Idiot recommends GE Aerospace, Lockheed Martin, and RTX. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.
