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Has RTX (RTX) Stock Run Too Far Ahead Of Fair Value?

Simply Wall St · 3d ago

RTX has delivered a strong share price run in recent years, which naturally raises a question for anyone looking at the stock today. Is the current valuation still grounded in the cash flows the business is expected to generate, or has price moved ahead of what its fundamentals can reasonably support?

  • RTX has returned 147.1% over the past 3 years, putting real weight on the question of whether its recent share price gains are aligned with its underlying cash flow power.
  • Fresh contract work for Raytheon under the PICASSO program and growing involvement in drone defense systems may support expectations for future cash generation but also concentrate more of RTX's outlook on defense technology projects with long development and funding cycles.
  • What if you looked at RTX through its earnings instead? See what RTX's 30.8x P/E says about the price.

The stock's next move may depend on whether RTX's current share price can be justified by its cash flows when evaluated against an intrinsic value estimate built from a Discounted Cash Flow (DCF) approach.

If you want more context around RTX and defense technology, it can help to compare it with other robotics and automation plays using the 90 robotics and automation stocks.

Is RTX Fairly Priced on Cash Flow?

The Discounted Cash Flow (DCF) model here uses RTX's projected free cash flows to gauge what the equity might be worth based on its own cash generation. The latest twelve month Free Cash Flow sits at about $8.9b, and the model assumes those cash flows keep growing rather than shrinking over the next decade, with analyst inputs feeding into the nearer term and more mechanical growth estimates extending further out.

Those projections leave RTX's intrinsic value from this DCF broadly in line with the current share price of $191.88. The DARPA PICASSO contract for Raytheon helps explain why the market is comfortable paying roughly what these projected cash flows suggest, since it points to ongoing investment in the type of defense technology projects that underpin the long term forecasts used in the model. Find out what RTX could be worth using our Discounted Cash Flow (DCF) estimate.

The RTX Narrative: What Would Justify Today's Price?

Narratives on RTX pick up where the valuation question leaves off by spelling out which assumptions on growth, profitability and earnings would need to hold for the shares to trade meaningfully higher or lower than today. Each scenario ties RTX's potential fair value to a specific mix of catalysts and risks, so you can watch over time which storyline comes closest to what actually unfolds on Simply Wall St's Community page.

One of the top community narratives on RTX: 16% undervalued

RTX’s record backlog of US$289b, supported by a Raytheon rolling 12 month book to bill of 1.77 and US$19.9b of quarterly awards for systems such as Patriot, AMRAAM, AIM 9X and LTAMDS, points to multi year conversion of contracted demand into revenue and segment operating profit that some investors may not yet fully reflect in valuations…

Discover why this Narrative puts RTX at 16% undervalued.

RTX valuation is only part of the story

Cash flow models tell you what RTX might be worth, but you also need to understand who is making the big capital allocation calls and how their rewards line up with your interests. See who runs RTX and how they are paid.