RTX trades at a fair valuation of 23.0 times 2027 estimated earnings of $8.50 per share. Record $340 billion backlog and commercial aftermarket strength are balanced by non-repeating tariff recoveries and defense supply chain bottlenecks, supporting a Hold rating and a $195.50 target.
Key points
- $340 billion in total backlog provides multi-year revenue visibility, driven by commercial aftermarket expansion and $52 billion of third-quarter defense bookings across Tomahawk and AMRAAM programs.
- $7.70 midpoint adjusted earnings per share for 2026 includes a non-recurring $0.25 tariff refund benefit, establishing a normalized baseline of $7.45 per share.
- 23.0 times forward earnings adequately values 14% core operational earnings growth into 2027, leaving shares balanced against supply constraints and commercial airline capacity discipline.
The call
Current trading requires RTX to compound core earnings at 14% annually while maintaining an elevated 25 times forward multiple. The market prices full conversion of defense framework awards and unabated commercial aftermarket demand. Yet it overlooks that one-time tariff recoveries inflated recent profit growth and that defense contracts recognize revenue gradually as capacity expands.
Quarterly Net Sales and Revenue Ramp ($ billions)- Reported Sales ($B)
- Desk Forecast Sales ($B)
Reported quarterly sales through Q3 FY26 (Form 10-Q) and analyst estimates through Q4 FY27E.
We believe the stock is about right. Operational execution is improving, with PW1100 maintenance throughput up 35% and powder-metal cash outlays fading. However, electronic component bottlenecks, airline fuel pressure, and defense margin structures cap near-term re-rating potential. At 23.0 times our 2027 earnings forecast of $8.50 per share, the stock tracks the broader market.
Target Price Sensitivity to Valuation Multiple and EPS ($)- Target at $8.20 EPS
- Target at $8.50 EPS (Base)
- Target at $8.70 EPS
Twelve-month target price sensitivity to 2027 diluted EPS and valuation multiple.
Valuation
| Valuation metric | 2027 projection |
|---|
| Net sales | $104.5 billion |
| Segment operating margin | 12.8% |
| Adjusted diluted EPS | $8.50 |
| Target P/E multiple | 23.0 times |
| Twelve-month price target | $195.50 |
| Free cash flow | $10.0 billion |
Our $195.50 target applies a 23.0 times multiple to 2027 estimated earnings of $8.50 per share. This multiple sits slightly below the current trailing 25.1 times rate to reflect non-repeating tariff recoveries and higher working-capital demands from munitions scale-ups. With 1.1% projected upside, risk and reward are symmetrically balanced, supporting our Hold rating.
Risks
- Supply chain bottlenecks in printed circuit boards and rocket motors delaying missile deliveries, visible in Raytheon inventory turnover and cost-to-cost booking pace.
- Commercial airline flight-hour retrenchment from elevated jet fuel expenses, visible in monthly engine flight hours and shop visit deferrals.
- Legislative restrictions under defense acquisition executive orders limiting contractor share repurchases or sustainment intellectual property rights, visible in National Defense Authorization Act language.
What would change my mind
A sustained ramp in commercial narrow-body production delivering over 20% organic profit expansion at Collins and Pratt without supply-chain bottlenecks would force an upgrade to Buy.