RTX's Clearer 2026 Growth Path: Backlog Conversion and Defense Visibility

For RTX, the path to 2026 is becoming tangible. The company's record backlog and raised guidance provide the clearest signal yet that management sees a defined runway for growth. The foundation is massive: a total backlog of $251 billion, split between $148 billion from commercial programs and $103 billion from defense. This depth of contracted work offers multi-year revenue visibility, a critical asset in a sector where execution is everything.

Management's confidence is reflected in a decisive upgrade to its full-year outlook. The company has raised its adjusted sales guidance for 2025 to a range of $86.5 billion to $87.0 billion, up from its prior forecast. This move follows a strong third quarter, where RTX delivered sales of $22.5 billion, up 12% year-over-year with 13% organic growth. The raised guidance, which also includes a higher adjusted EPS range, underscores that the company is not just meeting expectations but accelerating its output to convert this backlog efficiently.

The bottom line is that RTX has moved from a story of potential to one of execution. The $251 billion backlog is the promise; the raised guidance is the proof of management's ability to deliver on it. For investors, this clarity is valuable. It sets a concrete financial target for 2025 and provides a framework to assess the company's performance in the coming year. The scalability of this growth, however, will ultimately depend on how smoothly RTX can ramp production and convert this record order book into cash flow.

Catalysts Making the Path Clearer: 2026 Production Ramps and Contract Visibility

For RTX, the path to 2026 growth is being defined by two distinct, near-term catalysts: a major commercial engine upgrade and a concrete defense revenue contract. Together, they provide a clearer view of the company's operational momentum and financial visibility.

The first catalyst is the commercial engine ramp. The GTF Advantage engine for the Airbus A320neo family will enter service in 2026, with the first deliveries to Airbus starting in the coming months. This isn't just a new model; it's a durability-focused upgrade designed to solve a key operational pain point. The engine's Hot Section Plus (HS+) option, which incorporates components from the Advantage, is engineered to nearly double time-on-wing in challenging environments. This improvement directly addresses airline concerns about engine availability and maintenance costs, supporting higher aircraft utilization and boosting the lucrative aftermarket service business. The production cut-over to this more durable standard is planned over 18-24 months, ensuring a steady, multi-year revenue stream as new engines are delivered and existing ones are upgraded.

The second catalyst is a tangible defense contract. In December 2025, RTX secured a $1.6 billion sustainment contract for its F135 engines, which power the F-35 fighter jet. This contract provides immediate visibility into a significant portion of future revenue. The work includes depot-level maintenance, engineering support, and spare parts for U.S. and international customers. Crucially, the company has already delivered more than 1,300 F135 engines to the U.S. and 20 allied nations, creating a large installed base that ensures a steady flow of long-term service and support revenue. This contract, combined with a separate $2.8 billion production deal, reinforces a long runway for the F135 program.

Viewed together, these catalysts create a balanced growth story. The commercial side is about scaling a more competitive product into a growing market, while the defense side provides a stable, high-margin revenue stream. For investors, the key is the visibility: the 2026 engine entry and the multi-year sustainment contract remove some of the uncertainty around future demand, making the company's growth trajectory more predictable.

Risks and Execution Challenges: What Could Cloud the Path

The clear growth path for RTX is built on a powerful combination of a large installed base and a record backlog. Yet this scalability thesis faces material execution challenges that could pressure margins and test the company's operational discipline. The primary risk to scaling profitably is a dual front of input-cost inflation and the rapid ramp of complex programs, particularly Pratt & Whitney's GTF engines. Management has acknowledged that input-cost inflation, especially in metals and electronics, could pressure profitability. This is compounded by the operational strain of scaling production, which raises supply-chain and quality-control challenges. The company is responding with aggressive pricing, but that strategy itself can compress margins, as noted by the CFO's comment on a $90 million impact from tariffs dragging down profits.

Collins Aerospace, a key growth engine, is navigating this pressure with a stable, high-margin revenue stream. Its aftermarket business, which grew 13% year-over-year in the third quarter, is supported by a massive installed base of over $100 billion in out-of-warranty content. This provides a predictable revenue foundation. A new multi-year distribution agreement with AAR further strengthens this position, streamlining logistics and boosting availability for de-icing systems. This partnership is a strategic move to capture more aftermarket value from a loyal customer base, directly supporting the segment's stable, high-margin growth driver.

Despite this strength, the commercial aviation rebound remains a cyclical story exposed to macro volatility. The entire commercial aerospace segment, including Collins' original equipment and aftermarket, is tied to global air travel and fleet modernization. While demand is robust now, with production synchronized with Boeing and Airbus, the cycle is inherently vulnerable to economic downturns or geopolitical shocks. The company's own guidance reflects this, as it enters 2026 with a focus on flawless execution of its record backlog. The bottom line is that RTX's path to sustained growth depends on managing these tangible costs and execution risks while riding a cyclical wave. The scalability thesis is sound, but it requires the company to convert its massive backlog into profit without being derailed by inflation or supply-chain friction.

Investment Thesis and What to Watch

The investment case for RTX is now clearer, pivoting from a defensive hold to a growth bet on a rearmament super-cycle. The catalyst is a sector-wide shift, with JPMorgan analyst Seth Seifman raising the price target to $200 from $195 and maintaining an Overweight rating. The firm's outlook for aerospace remains positive, citing strong demand and a gradual increase in supply to support "visible growth". This sets a near-term valuation target, with the stock trading around $183 as of late December, implying potential upside.

The key watchpoint is the company's ability to convert its record backlog into cash. The defense segment's book-to-bill ratio of 2.27 in Q3 2025 is the critical metric. This figure means new orders are more than doubling shipments, providing exceptional visibility into future revenue. For investors, this ratio acts as a financial moat, guaranteeing growth for years even if broader economic cycles slow.

The specific operational catalysts to monitor are the ramp of the GTF Advantage engine and the resolution of the F135 sustainment work. The GTF Advantage is the next-generation engine for the Airbus A321neo, and its production ramp is central to aerospace growth. Meanwhile, the recent $1.6 billion sustainment contract for F135 engines and the prior $2.8 billion production contract provide a long runway of stable, high-margin work. Successfully managing this F135 pipeline will validate the 2026 production and margin expansion thesis.

The bottom line is a company with a dual engine: a commercial aftermarket cash flow generator and a defense backlog that ensures growth. The path forward hinges on execution against these clear operational milestones.