RTX Corporation: A Contrarian Opportunity in Aerospace Defense Ahead of Key Earnings

As RTX Corporation prepares to report second-quarter 2025 earnings on July 22, investors face a paradox: a stock languishing with a Zacks #4 (Sell) rating despite its aerospace-defense industry ranking in the top 24% of all sectors. This discrepancy presents a compelling contrarian opportunity. Let us dissect the data, valuation metrics, and historical Zacks performance trends to argue that RTX's shares could rebound sharply if earnings meet or exceed expectations—a possibility obscured by near-term pessimism.

The Contrarian Case: Weak Rank vs. Strong Sector

RTX's Zacks #4 (Sell) rating stems from recent downward revisions to its earnings estimates. Over the past month, the Zacks Consensus EPS estimate for the quarter dropped by 0.65%, and analysts have trimmed full-year projections. Yet, this near-term caution contrasts sharply with the broader sector's health. The Aerospace-Defense industry holds a Zacks Industry Rank of 58 (top 24% of all industries), a position bolstered by strong demand for defense modernization and global infrastructure projects.

The sector's outperformance is no fluke. Zacks' 10-year backtest data reveals that industries in the top 25% of its ranking system outperform the S&P 500 by over 150% annually. RTX's industry is not only resilient but positioned to capitalize on geopolitical tensions and defense spending booms. The company's $92 billion backlog as of March 2025, including projects like the Barracuda mine neutralization system, underscores its role as a critical supplier to global militaries.

Earnings Catalyst: Can RTX Surprise to the Upside?

The earnings report on July 22 is a critical inflection point. Analysts currently project EPS of $1.45 and revenue of $20.66 billion for the quarter, representing 2.8% and 4.8% year-over-year growth, respectively. While these figures are modest, they may understate RTX's potential. Consider:
- Supply-chain recovery: Persistent disruptions have weighed on results, but recent improvements in semiconductor availability and logistics could boost execution.
- Geopolitical tailwinds: Rising defense budgets in the U.S. and Europe, particularly for advanced systems like hypersonic missiles and electronic warfare tools, align with RTX's strengths.
- Cost discipline: Management has aggressively cut non-essential spending to protect margins amid inflation—a strategy that could yield results in Q2.

A positive surprise here could trigger a reassessment of RTX's Zacks Rank. Historically, stocks moving from a #4 to a #3 (Hold) or higher have delivered average annual returns of 14% in the subsequent quarter, per Zacks' data.

Valuation: A Mispriced Growth Story?

RTX's valuation metrics highlight further asymmetry. While its Forward P/E of 24.76 matches the industry average, its PEG ratio of 2.73 exceeds the sector's 2.02. This premium reflects skepticism about its ability to sustain growth. Yet, RTX's full-year 2025 EPS forecast of $5.93 (+3.5% growth) and revenue of $84.14 billion (+4.2%) suggests a path to recovery. If these numbers are achievable—and if cost controls improve—RTX's PEG could normalize, unlocking upside.

The Contrarian Play: Buy the Dip Ahead of Earnings

The Zacks #4 rating is a contrarian's gift. The system's rules are clear: downward EPS revisions drive lower rankings, and RTX's recent misses have been well documented. Yet, this pessimism may be overdone. The aerospace-defense sector's top-tier ranking and RTX's structural advantages—its diversified product portfolio, geopolitical relevance, and improving supply chains—suggest the stock is primed for a rebound.

Investors should consider:
1. Buying on weakness ahead of July 22: A pre-earnings dip could offer entry points below $200, where shares have traded in recent weeks.
2. Monitoring analyst revisions post-report: If earnings beat expectations, Zacks' quantitative model could rapidly re-rate RTX upward.
3. Long-term value: Even at current levels, RTX's backlog and long-term contracts (e.g., F-35 sustainment) provide a foundation for multiyear growth.

Risks and Caveats

Of course, risks remain. Supply-chain delays could persist, and geopolitical tensions might lead to unexpected sanctions or trade barriers. A miss on earnings could further depress the stock. However, the current Zacks #4 rating already prices in many of these concerns. For contrarians, the asymmetry—limited downside at $200 but potential upside if the rank improves—is compelling.

Conclusion: A Sell Rating in a Buy Sector

RTX Corporation sits in a rare position: a stock with a “Sell” rating in an industry ranked among the top quartile of all sectors. The July 22 earnings report is a catalyst that could redefine this narrative. For investors willing to bet against the short-term pessimism embedded in its Zacks Rank, RTX offers a high-reward opportunity. As the adage goes: “Buy when there's blood on the streets”—even if the blood is metaphorical, and the streets are Wall Street's screens.

Investment recommendation: Consider initiating a long position in RTX at current levels, with a stop-loss below $190, targeting $220–$230 if the Zacks Rank improves post-earnings.

This analysis is for informational purposes only and not a recommendation. Always conduct your own research and consult a financial advisor.