Defense contractor RTX Corporation (NYSE: RTX) is set to open Monday's trading session just 1.2% shy of its 52-week high, following a week of gains that mirrored the broader market's advance. The stock closed Friday at $223.03, placing it 2.5% below the consensus price target of $228.59 from 21 analysts polled by MarketBeat.
The company's shares have climbed 14.4% since July 22, the last trading day before its second-quarter earnings report, when it raised guidance and disclosed a 22% year-over-year increase in backlog. The backlog now stands at $289 billion, representing 3.0 times projected 2026 sales, the highest ratio among its defense peers.
However, cash conversion remains a key challenge. RTX offers a free-cash-flow yield of just 2.9% for 2026, based on midpoint guidance and Friday's closing price. In comparison, Lockheed Martin (NYSE: LMT) delivers a 5.2% yield, and Northrop Grumman (NYSE: NOC) posts 4.1%. This disparity underscores a critical investment consideration: while RTX has the largest order book relative to sales, its near-term cash returns lag those of competitors, making execution and capacity expansion crucial for shareholder value.
Demand for RTX's products remains robust, underscored by recent reports from Reuters indicating that Patriot missile inventories are stretched thin in the United States, Europe, and Gulf countries. The Center for Strategic and International Studies (CSIS) estimates U.S. interceptor supplies are below 1,000 units. RTX's Raytheon division manufactures Patriot platforms and PAC-2 GEM-T missiles, while Lockheed produces the PAC-3 line. The company is also ramping up production of Tomahawk missiles from roughly 60 units per year to a target of 1,000, a nearly 17-fold increase.
Second-quarter results reflected early signs of operating leverage. Revenue grew 14% to $24.7 billion, adjusted earnings per share rose 21% to $1.89, and free cash flow reached $2.9 billion. CEO Chris Calio noted, "Demand remains robust, and our backlog is up 22 percent year over year." The growth was broad-based, with Raytheon benefiting from weapons demand and Pratt & Whitney supported by commercial aftermarket and military activity.
Segment performance was strong: Collins Aerospace reported sales of $8.21 billion, up 8% (13% organic), with adjusted margins of 16.7%; Pratt & Whitney saw sales of $8.89 billion, up 16%, with adjusted margins of 8.3%; and Raytheon generated $8.27 billion, up 18%, with adjusted margins of 12.6%. Raytheon secured approximately $10 billion in international bookings during the first half, with $7 billion from Europe, according to CFO Neil Mitchill.
Analysts remain constructive, with a mix of ratings: one strong buy, 14 buys, five holds, and one sell. Recent price target adjustments include Sanford C. Bernstein raising to $232, TD Cowen to $240, RBC to $250, and Morgan Stanley to $240, while UBS trimmed to $215. The average target implies modest upside from current levels.
Investors will watch upcoming economic data, including July's consumer price index due Wednesday and producer prices Thursday, which could influence interest rate expectations. RTX's $0.73 dividend goes ex-dividend on Friday, with payment on September 3.
Risk factors include potential delays in factory ramp-ups, shortages of critical minerals, and program charges, particularly related to Pratt & Whitney's GTF inspection program. Weaker defense spending or a downturn in airline aftermarket demand would also weigh on growth. For now, RTX holds a commanding order book; the market's focus shifts to whether the company can convert those orders into cash efficiently.
