RTX Corp (RTX, Financial) recently recorded a daily gain of 4.08%, despite a 3-month loss of 24.96%. With an Earnings Per Share (EPS) (EPS) of 3.77, the question arises: is the stock modestly undervalued? This article offers a detailed valuation analysis of RTX, providing insights into its financial strength, profitability, and growth prospects. Read on to determine whether RTX is a worthwhile investment.
Company Overview
RTX Corp (RTX, Financial), a diversified aerospace and defense industrial company, was formed from the merger of United Technologies and Raytheon. It equally supplies to commercial aerospace manufacturers and the defense market. RTX operates in three segments: Collins Aerospace, a diversified aerospace supplier; Pratt & Whitney, an aircraft engine manufacturer; and Raytheon, a defense prime contractor providing a mix of missiles, missile defense systems, sensors, hardware, and communications technology to the military.
At its current price of $72.62 per share, RTX has a market cap of $105.70 billion. Comparatively, the GF Value, an estimation of the fair value, is $102.37. This discrepancy suggests that RTX's stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given that RTX's stock price is below the GF Value Line, it appears to be modestly undervalued. This implies that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. The cash-to-debt ratio and interest coverage of a company can provide a good understanding of its financial strength. RTX has a cash-to-debt ratio of 0.15, which ranks worse than 75.43% of 293 companies in the Aerospace & Defense industry. The overall financial strength of RTX is 5 out of 10, indicating that the financial strength of RTX is fair.
Profitability and Growth
Investing in profitable companies generally carries less risk, especially if they've demonstrated consistent profitability over the long term. RTX has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $70.60 billion and Earnings Per Share (EPS) of $3.77. Its operating margin of 8.51% is better than 59.18% of 294 companies in the Aerospace & Defense industry. Overall, GuruFocus ranks RTX's profitability as fair.
Growth is a critical factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of RTX is -4.9%, which ranks worse than 70.83% of 264 companies in the Aerospace & Defense industry. The 3-year average EBITDA growth rate is -8.1%, which ranks worse than 68.26% of 230 companies in the Aerospace & Defense industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, RTX's ROIC is 3.83 while its WACC came in at 7.59.
Conclusion
In conclusion, RTX (RTX, Financial) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 68.26% of 230 companies in the Aerospace & Defense industry. To learn more about RTX stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
