The market is about right about the recovery. Engine maintenance and missile production support higher earnings, but the largest defense contracts need years to reach full output. My twelve-month target is $213.
Key points
- $8.52 a share is my 2027 adjusted earnings forecast, excluding designated unusual charges.
- $340 billion of September backlog supports growth, not an immediate profit windfall.
- $213 a share is my twelve-month target, supporting Hold.
The call
The price requires steady improvement, not a miracle. At my assumed valuation of 25 times annual earnings, today's shares require $7.73 of earnings in 2027. That is roughly 4% growth over this year's guidance midpoint after removing tariff refunds. January's outlook will test whether operating gains replace that temporary benefit.
Defense orders drove most of the backlog increase ($ billions)Source: RTX September 2026 10-Q, filed October 20, 2026. Backlog is orders, not sales.
The market is about right, although I expect stronger earnings. Maintenance payments and rising missile output support my forecast. GE Aerospace's latest services growth independently supports resilient repair demand. But new missile capacity takes years, and quarterly engine groundings stopped improving. Recent underperformance also argues against assuming another valuation surge.
Valuation
| Driver | My estimate |
|---|
| 2027 consolidated sales | $105 billion |
| 2027 adjusted operating margin | 14.3% |
| 2027 adjusted earnings per share | $8.52 |
| Core earnings multiple | 23 times |
| Missile-franchise premium | 2 times |
| October 2027 price target | $213 |
My model assumes improving profitability in all three divisions, modest share dilution and no buybacks. The franchise premium recognizes scarce missile capacity and contracted demand; funding cuts or failed production ramps would remove it. A slower-growth case gives about $169, versus $251 with faster execution, leaving insufficient upside in my central forecast for Buy.
Risks
- Airline weakness could overwhelm maintenance demand; watch repair orders and further customer credit losses.
- Missile orders could consume cash before generating profit; watch funding, component deliveries and customer advances.
- Engine repairs could disappoint; watch whether grounded aircraft decline and durability upgrades enter maintenance shops on schedule.
What would change my mind
Sustained reductions in grounded aircraft and cash collections exceeding earnings through September 2027 would justify a higher forecast and potentially a Buy.
