RTX Corp: Strong Backlog, Soaring Valuation -- Is the Stock Still a Buy?

RTX Corporation, the aerospace and defense giant formed through the 2022 merger of Raytheon Technologies and United Technologies, has emerged as a dominant force in a sector reshaped by geopolitical tensions and surging defense budgets. Its Q3 2025 results, with revenue of $21.58 billion-a 9.4% year-over-year increase-underscore its resilience, driven by robust demand for integrated air and missile defense systems and a $236 billion backlog (up 15% YoY), according to RTX's Q2 2025 results. Yet, as its valuation multiples climb, investors must ask: Is this stock still a buy, or has the market already priced in too much optimism?

A Backlog to Rival Giants, But Conversion Risks Loom

RTX's backlog, split into $144 billion in commercial and $92 billion in defense contracts as of Q2 2025, provides a critical buffer against short-term volatility, according to the Fintool report. Defense demand, particularly for Golden Dome and hypersonic missile systems, has surged amid global instability, with management projecting sustained growth, as noted in a Monexa update. However, converting this backlog into cash flow is not without risks. Supply chain bottlenecks, exacerbated by the U.S. dollar's weakness against the Danish kroner, and program delays-such as those in the Pratt & Whitney GTF engine line-threaten margins. For instance, Q3 2025 saw a $250 million compensation cost linked to GTF reliability issues, eroding free cash flow by $72 million, according to a Monexa analysis.

The commercial segment, while benefiting from rising air traffic, faces structural challenges. Warranty costs for GTF engines have strained profitability, and a four-week work stoppage at Pratt & Whitney in Q2 2025 further dented operational efficiency, as detailed in the earnings call transcript. These issues highlight the fragility of RTX's earnings power in non-defense markets, where margins are inherently thinner.

Valuation Multiples: A Premium for Growth, or a Bubble?

RTX's valuation appears to reflect a premium for its growth prospects. As of October 2025, it trades at a trailing P/E of 37.25 and a forward P/E of 25.93, with a PEG ratio of 3.02-well above the Aerospace-Defense industry average of 2.26, per Zacks PEG data. This premium is partly justified by its robust backlog and leadership in high-margin defense contracts. However, it also raises questions about sustainability. For example, peers like Lockheed Martin (P/E: 16.92) and General Dynamics (P/E: 22.29) trade at significantly lower multiples, suggesting the market is pricing in outsized growth for RTX, according to StockAnalysis statistics.

Macroeconomic headwinds further complicate the picture. Tariff-related costs, initially estimated at $850 million annually, have been reduced to $500 million through mitigation efforts, but they still cut $0.30 off adjusted EPS, the Fintool report noted. Meanwhile, inflation and interest rate dynamics could pressure capital expenditures and the discounting of future cash flows, particularly for a capital-intensive business like RTX.

Free Cash Flow: A Mixed Picture

RTX's free cash flow outlook for 2025-$7.0 billion to $7.5 billion-remains a cornerstone of its appeal, but recent performance has been uneven. Q2 2025 saw breakeven free cash flow, dragged down by the Pratt & Whitney work stoppage and tariff expenses, according to a Barchart report. Over the trailing twelve months, operating cash flow stood at $7.159 billion, down from $7.883 billion in 2024, per Macrotrends cash flow. While the company has returned $852 million to shareholders via dividends and buybacks in 2024, its ability to sustain such returns hinges on resolving operational inefficiencies and maintaining pricing power in the GTF engine business.

Strategic Resilience: Innovation and Geopolitical Tailwinds

RTX's long-term prospects are bolstered by its strategic focus on innovation and geopolitical tailwinds. Investments in hypersonic missile development, cybersecurity, and advanced radar systems align with global defense modernization trends, according to a GlobeNewswire playbook. CEO Christopher Calio has emphasized the importance of "operational agility" in navigating supply chain disruptions, while CFO Neil Mitchill has highlighted the company's progress in mitigating tariff impacts through cost-reduction initiatives, as the Monexa update noted. These efforts, if sustained, could insulate RTX from macroeconomic shocks and justify its premium valuation.

Conclusion: A Buy, but with Caution

RTX's strong backlog and leadership in defense spending provide a compelling case for long-term investors. However, its soaring valuation multiples and operational risks-particularly in the commercial segment-demand careful scrutiny. The stock is not a "no-brainer" buy at current levels but merits consideration for those who believe in its ability to convert backlog into cash flow and navigate macroeconomic headwinds. As always, diversification and a disciplined approach to risk are essential.

Historical data from 2022 to 2025 reveals that RTX's stock has historically outperformed the market in the short term following earnings releases. Specifically, a buy-and-hold strategy over the two trading days after earnings announcements yielded an average return of +1.62% with an 80% win rate, significantly outperforming the S&P 500's +0.15% during the same period. While returns remain positive out to 30 days (avg +2.84%), only the two-day window shows statistical significance. This pattern suggests that investors who time their entry around earnings events may capture short-term upside, though long-term success depends on RTX's ability to sustain operational improvements and backlog conversion.