RTX Corporation: A Strategic Bet on Defense Innovation Amid Elevated Valuations

The defense and aerospace sector is at a pivotal crossroads, balancing near-term macroeconomic headwinds with long-term growth fueled by global defense modernization. RTX Corporation (NYSE:RTX) has emerged as a key beneficiary of this dynamic, with TD Cowen's recent price target hike to $155 underscoring its strategic advantages. This article dissects the rationale behind the upgrade, compares RTX's fundamentals to peers like Deere & Co (DECK), and argues why long-term investors should prioritize RTX despite its elevated valuation.

Catalysts Driving RTX's Price Target Increase

TD Cowen's decision to raise RTX's price target from $142 to $155 reflects confidence in three core pillars:
1. Margin Resilience: RTX's RTN/P&W divisions are executing operational improvements, with margin expansion outpacing peers. The GTF "AoGs" (Aircraft on Ground) issue, once a drag on cash flow, has peaked, reducing maintenance costs and freeing capital for growth.
2. Defense Sector Tailwinds: RTX's role in critical programs like Qatar's $1 billion FS-LIDS counter-drone system and the U.S. Missile Defense Agency's AN/TPY-2 radar highlights its dominance in high-margin defense tech. The $243 billion U.S.-Qatar economic pact further positions RTX to benefit from global defense spending.
3. Valuation Discount: RTX trades at 16.17x 2025E EV/EBITDA versus peers like GE Aero (20x+), offering a valuation upside as its margin trajectory improves.

RTX vs. DECK: A Tale of Two Industrial Giants

While DECK's recent price target increases (e.g., $530 → $560 at Raymond James) reflect its ability to navigate tariffs and precision agriculture demand, RTX's catalysts are more structural:

Metric	RTX (2025E)	DECK (2025E)
Revenue Growth	4–6% (organic)	~-8% (reported)
Free Cash Flow	$7.5B target	$1.9B (est.)
Debt-to-Equity	0.7 (moderate)	0.5 (conservative)
Key Risks	Tariffs, labor strikes	Farmer profitability, inventory

DECK's tariff mitigation (via vertical integration) is impressive, but RTX's defense backlog ($218B) offers superior visibility. While DECK's stock has rallied 27% YTD on ag resilience, RTX's $5.45B levered FCF over 12 months and 27.16% YTD return signal a stronger growth trajectory.

The Case for RTX: Why the Valuation Makes Sense

Critics argue RTX's 21.3x 2025E EV/EBITDA multiple (per TD Cowen) is high. But consider:
- Technology Premium: RTX's investments in AI-driven maintenance (e.g., predictive engine diagnostics) and next-gen defense systems (e.g., Golden Dome) justify a premium.
- Margin Leverage: A 100 bps margin expansion in RTN/P&W could add ~$1.5B to annual EBIT, driving EPS upside.
- Low Peer Risk: Unlike DECK, RTX's demand isn't tied to cyclical farm incomes or used equipment glut. Defense budgets are countercyclical.

Risks and Near-Term Volatility

No investment is without risks. RTX's Q2 2025 free cash flow faces headwinds:
- Tariffs: ~$400M cash hit due to prepayment on inventory.
- Labor Strikes: A May strike at key facilities could reduce engine deliveries by 25%, impacting FCF.

However, these are temporary. Analysts like TD Cowen expect tariff reductions and post-strike recovery to offset 2025E earnings. The $850M EBIT tariff headwind is manageable given RTX's $218B backlog.

Investment Thesis: Allocate Strategically

For long-term investors, RTX's multi-year growth drivers outweigh near-term noise:
1. Defense Modernization: Global spending on air/missile defense systems is projected to grow at ~6% CAGR through 2030. RTX's $1B Qatar deal is a harbinger of international wins.
2. Commercial Aerospace Recovery: Collins Aerospace's aftermarket demand and Pratt's LCE (Large Commercial Engine) growth will stabilize margins.
3. Dividend Discipline: RTX's 1.5% yield is modest but supported by $4.5B FCF in 2024, with plans to return capital via buybacks.

Conclusion: RTX is a Buy for the Next Decade

While DECK's tariff resilience and ag tech leadership deserve praise, RTX's strategic moat in defense innovation and undervalued backlog make it a superior long-term play. TD Cowen's $155 PT reflects a 27% upside from current levels, but even at current prices, RTX's 27.16% YTD return signals investor confidence.

Action for Investors:
- Buy RTX at $123 (as of May 23, 2025) for a 5+ year horizon, targeting $200 by 2030.
- Hold through Q2 volatility: Near-term FCF misses are priced in; focus on margin trends and defense contract wins.

The defense sector isn't for the faint-hearted, but RTX's blend of technological leadership and valuation upside makes it a must-own for investors willing to look beyond the next quarter.

Final Note: Defense stocks thrive in uncertain times. RTX's ability to deliver on its backlog while adapting to macro risks positions it as a pillar of industrial resilience.