Why RTX's Outperformance Hides a Storm Cloud: Risks Lurking for Investors

RTX has been a star performer this year, but dig deeper and you'll find cracks in the armor. Let's break down why this stock—despite its recent gains—is sitting on a powder keg of risks that could derail its momentum.

The Outperformance: A Cloak for Concerns

RTX has crushed the S&P 500 in 2025, rising 17.1% vs. the index's paltry 1.2%. Its trailing 12-month return of 28.9% also beats the broader market. But here's the rub: over the past decade, RTX's annualized return of 8.8% lags the S&P's 12.8%. That's a warning sign.

The stock's current valuation is another red flag. Trading at 22.1x forward P/E, RTX is pricier than its defense peers. For instance, Lockheed Martin (LMT) trades at 16.2x, and Northrop Grumman (NOC) at 17.4x. This premium isn't justified by its recent earnings. RTX's EPS has been flat for five years, and its ROIC of just 2.5%—barely above its cost of capital—is a glaring weakness.

Analyst Estimates: Growth is Slowing, and It's Not a Mirage

Analysts are hitting the brakes on RTX's growth. They now project revenue growth of just 4% over the next year, down sharply from its 12.3% average over the past five years. This slowdown isn't just a hiccup—it's a trend.

Why? Two words: supply chain hell.

Industry Dynamics: Defense Dollars Flow, But Supply Chains are Broken

The U.S. defense budget is booming, with the Pentagon's $850B fiscal 2025 request prioritizing hypersonic missiles, solid rocket motors, and drones. RTX's Collins Aerospace and Raytheon divisions are right in the thick of it.

But here's the catch: global supply chains are a disaster.

• Shipping Costs: Panama Canal bottlenecks and Red Sea rerouting have hiked freight costs to five times pre-pandemic levels.
• Parts Shortages: Aircraft manufacturers face delays as tier 2/3 suppliers struggle to deliver components. One RTX supplier network involves nine layers, with 80% of jet parts sourced from these smaller firms—many of which are overextended.
• Counterfeit Parts: The Aviation Supply Chain Integrity Coalition was formed in 2024 to tackle this, but the risk remains.

These issues aren't just operational headaches—they're profit killers. RTX's margins are already squeezed, and delays could force costly overhauls or penalties on fixed-price contracts.

The Dividend: A Silver Lining, but Not a Lifeline

RTX's 1.92% dividend yield beats the S&P's 1.2%, but don't mistake it for safety. Dividends are only as strong as the earnings behind them. With EPS stagnant and growth slowing, the dividend could be cut if profits crater.

The Bottom Line: Buy the Dip? Or Bail Now?

RTX's outperformance has been real, but it's built on borrowed time. The stock's valuation is stretched, its growth is slowing, and supply chain risks are existential.

For investors:
- Bulls: Bet on U.S. defense spending staying strong and RTX's backlog ($93B) shielding it from short-term pain.
- Bears: Worry that slowing revenue, margin pressure, and geopolitical shocks (e.g., Middle East conflicts) could derail execution.

My call: Avoid RTX for now. While the defense sector is a must-hold for long-term portfolios, RTX's risks are too high. Wait for a pullback to the $200 level—its 200-day moving average—before considering a position.

Final Take: RTX's recent gains are a siren song. The defense industry is a growth story, but this stock's valuation and supply chain vulnerabilities make it a risky bet. Stick to cheaper peers like LMT or NOC for now.

Stay tuned, stay skeptical—and keep your powder dry on RTX.