RTX Corp (RTX, Financial) has recently shown a daily loss of -1.63%, with a 3-month decline of -6%. Despite these figures, the company's Earnings Per Share (EPS) stands at 2.15. Investors are now faced with the question: is RTX modestly undervalued? The following analysis aims to shed light on this query, delving into the intrinsic valuation of RTX Corp (RTX).
Company Introduction
RTX Corp (RTX, Financial) is a prominent player in the aerospace and defense industry, formed from the merger of United Technologies and Raytheon. The company is equally invested in commercial aerospace manufacturing and defense markets, operating through three main segments: Collins Aerospace, Pratt & Whitney, and Raytheon. With a current stock price of $80.69 and a Fair Value (GF Value) of $101.1, RTX appears to be modestly undervalued. This discrepancy invites a thorough valuation analysis to better understand the company's market position.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, factoring in historical trading multiples, a GuruFocus adjustment for past performance and growth, and future business performance projections. RTX (RTX, Financial) is currently positioned as modestly undervalued according to this valuation. The GF Value suggests a fair trading value that the stock should gravitate towards. If a stock trades significantly above this value, it is likely overvalued with a dim outlook on future returns. Conversely, if it trades below, it may promise higher future returns. With a market cap of $116 billion, RTX's stock price suggests an attractive investment opportunity relative to its GF Value.
Because RTX is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, presenting a potentially lucrative option for investors.
Financial Strength
Investing in companies with robust financial strength is crucial to mitigate the risk of capital loss. RTX's financial strength is fair, with a cash-to-debt ratio of 0.15, placing it lower than 74.83% of its peers in the Aerospace & Defense sector. This metric, along with interest coverage, provides insight into the company's ability to manage debt and finance its operations effectively.
Profitability and Growth
RTX has maintained profitability for 9 out of the past 10 years, with recent annual revenues of $67.10 billion and an Earnings Per Share (EPS) of $2.15. However, its operating margin of 4.51% is lower than over half of its competitors within the industry. In terms of growth, RTX's 3-year average annual revenue growth rate of -4.9% and EBITDA growth rate of -8.1% are below industry averages, indicating potential challenges ahead.
ROIC vs WACC
The comparison between a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC) can reveal its efficiency in generating cash flow relative to its capital investments. RTX's ROIC of 2.11 is significantly lower than its WACC of 7.66, suggesting that the company may not be creating adequate value for its shareholders.
Conclusion
In conclusion, RTX (RTX, Financial) is estimated to be modestly undervalued. The company's financial condition and profitability are both rated as fair, though its growth ranks below many of its industry counterparts. To gain a deeper understanding of RTX's financials, investors can explore the 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.
