Should You Add RTX Stock to Your Portfolio Pre-Q3 Earnings Release?

RTX Corp. RTX is slated to release third-quarter 2024 results on Oct. 22, before the opening bell.  

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

The Zacks Consensus Estimate for revenues is pegged at $19.91 billion, implying 5.1% growth from the year-ago quarter's reported figure. The consensus mark for third-quarter earnings is pegged at $1.33 per share, suggesting a 6.4% rise from $1.25 reported in the prior-year quarter. The bottom-line estimate has remained unchanged in the past 60 days.

 

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RTX, a prominent U.S. defense contractor, has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 6.62%.

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Earnings Whisper for RTX Stock

Our proven model does not conclusively predict an earnings beat for RTX this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

RTX has a Zacks Rank #3 and an Earnings ESP of -0.74% at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Key Factors to Consider for RTX’s Q3 Results

Growing Commercial Sales: A Key Growth Catalyst

Steadily increasing domestic and international commercial air traffic, resulting in increased flight hours, has been significantly boosting aftermarket demand for commercial jets in recent times. This, in turn, must have bolstered RTX’s commercial aftermarket sales across each of its aftermarket sales channels in the third quarter.

On the other hand, an increased demand for commercial passenger and business jets, buoyed by improving commercial air passenger travel rates, is likely to have boosted deliveries of jet engines from Pratt & Whitney. In particular, high sales volume for large commercial engines, is expected to have contributed favorably to RTX’s commercial original equipment manufacturer (OEM) sales.

Such impressive sales growth expectations from commercial OEM and aftermarket businesses might have cumulatively boosted the top-line projections for both Pratt & Whitney and Collins Aerospace segments.

The Zacks Consensus Estimate for Pratt & Whitney’s third-quarter adjusted sales is pegged at $6,940.9 million, indicating an improvement of 9.7% from the year-ago quarter’s reported figure. The consensus mark for Collins Aerospace’s adjusted sales is pinned at $7,124.9 million, indicating a 6.6% increase from the prior-year quarter’s level.

Solid Outlook for Military Sales

Growing global defense budgets have led RTX to witness solid order growth, particularly for its combat-proven missiles and radars, in the recent past, which, in turn, should be reflected in the form of notable sales growth for RTX’s military business in the third-quarter results. Moreover, high sustainment volume for the F-135 and F-117 and F-100 programs is likely to have bolstered sales for the company’s military engine business.

Factors Influencing Q3 Earnings

Strong sales performance from the majority of RTX’s businesses, as mentioned above, might have boosted the company’s overall revenues.
Factors like solid sales expectations, profit from higher commercial aftermarket at Pratt & Whitney as well as Collins Aerospace, higher defense volume, along with lower interest in corporate expenses and higher pension income are expected to have bolstered RTX’s earnings. 

However, persistently high interest expenses might have affected the bottom-line performance to some extent. 

Moreover, as the company continues to expand its capacity to meet the demands of the industrial ramp-up, we might witness a spike in its third-quarter operating expenses. This, in turn, is likely to have had some adverse impact on its overall earnings growth.

Price Performance & Valuation

RTX’s shares have exhibited an upward trend, gaining a notable percentage over the year-to-date period. Specifically, the stock has risen 50%, outperforming the Zacks aerospace-defense industry’s decline of 7.5%.

YTD Performance

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As evident from the image, other notable stocks from the same industry have also rallied year to date and comfortably outpaced the industry’s performance. Shares of L3Harris Technologies LHX, General Dynamics GD and Textron TXT have rallied 17.8%, 17.4% and 9%, respectively.  

From a valuation perspective, RTX is trading at a premium when compared to its industry. Currently, RTX is trading at 21.20X forward 12-month earnings, which is higher than the industry’s forward earnings multiple of 19.61. Also, its five-year median is 18.07X. So, the company’s valuation also looks stretched compared with its own range.

RTX’s Price-to-Earnings (Forward 12 Months)

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Investment Thesis

As we witness heightened geopolitical tensions across the globe as a result of a significant spike in cross-border disputes like that of Iran-Israel as well as civil unrest in different parts of the world lately, growing demand for defense products continues to play a vital role in boosting sales growth for prominent defense contractors like RTX. Expanding commercial air traffic worldwide also remains a major growth catalyst for RTX, with more than 13,000 of its large commercial engines installed globally. We may expect the company’s third-quarter results to duly reflect these growth trends in terms of notable revenue and earnings growth. 

Backed by its solid top-line prospects, the company has been offering notable rewards to its shareholders. RTX’s dividend yield of 2.00% exceeds that of the S&P 500 (1.22%). 

However, the company’s Return on Equity (ROE) came in lower than that of its peer group. This indicates that RTX is not effectively using its shareholders' equity to generate profits compared to its Peer Group. 

RTX’s ROE

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Should You Buy RTX Stock Before Q3 Earnings Release?

RTX is less likely to disappoint with its third-quarter results, considering the year-over-year growth reflected in its sales and earnings estimates, favorable Zacks Rank and a positive Earnings ESP. However, considering its premium valuation and low ROE, investors interested in this stock should wait until next Tuesday. 

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