RTX's Rally: A Tactical Setup Ahead of the January 27 Catalyst

The setup is clear. RTX has been on a steady climb, and the recent price action frames a specific, near-term trade. The stock extended its winning streak to a seventh straight session on Friday, closing up 1.13% to $202.08. This momentum carried over into the latest session, where RTX gained 1.05% to $201.92, a move that outpaced the S&P 500's slight loss. More broadly, the stock's 12.08% rally over the past month has decisively outpaced the S&P 500's 1.99% gain.

This isn't just a sector-wide move. The outperformance suggests the market is pricing in something specific, likely ahead of a definitive event. That event is now in sight. The company is slated to reveal its earnings on January 27, 2026, prior to the market open. For all the recent gains, this report is the catalyst that will resolve the current mispricing. It will provide the hard data to confirm or contradict the optimism already reflected in the stock's double-digit monthly surge.

The Mechanics of the Rally: Defense Wins and Backlog

The rally isn't a vague sentiment; it's built on concrete contracts that directly feed the company's financial engine. The most significant recent catalyst is the $1.7 billion contract from Spain for four Patriot air defense systems. This isn't just another sale. It's Spain's largest order ever for the system, a clear vote of confidence in RTX's flagship defense product. The deal, which includes radars, launchers, and command-and-control stations, is a direct shot of near-term revenue and a powerful signal of global demand for integrated air and missile defense. It follows similar orders from Germany, the Netherlands, and Romania earlier in 2025, suggesting a sustained international build-up.

Complementing this defense win is a major commercial contract. In early January, Collins Aerospace secured a $438 million contract from the FAA to support the Radar System Replacement program. This is a cornerstone of the agency's modernization effort for the U.S. National Airspace System. The work will deploy next-generation radar systems, replacing outdated technology with a unified, cost-effective architecture. For RTX, this is a multi-year revenue stream that leverages its deep legacy in avionics and positions it as a key partner in critical infrastructure upgrades.

These specific wins are the fuel for the rally, but they are also a visible manifestation of a much larger, strategic asset: the company's record backlog. RTX's total backlog stands at a staggering $251 billion, with a 1.63 book-to-bill ratio in the third quarter. Of that, the defense segment holds $103 billion in backlog. This is the critical reservoir that drives near-term revenue recognition. The Spain deal and the FAA contract are not isolated events; they are the first major buckets being drawn from this deep well. The mechanics are straightforward: as these large contracts are executed, they convert backlog into revenue, providing a tangible, quarterly earnings boost that the market is already pricing in.

The bottom line is that the rally has a clear, event-driven foundation. The Spain deal and the FAA contract are not just PR wins; they are immediate contributors to the financials and tangible proof that the company's massive backlog is actively being converted. This creates a self-reinforcing cycle: strong contract wins boost the backlog further, which in turn fuels future revenue and supports the stock's momentum heading into the January 27 earnings report.

The Earnings Test: Headline Numbers and the Guidance Trap

The market has already priced in a story of strong contract wins and a deep backlog. The upcoming report on January 27 will test whether the financials match that narrative. The headline expectations are mixed. For the fourth quarter, analysts expect earnings of $1.45 per share, which would mark a year-over-year decline of 5.84%. Revenue is forecast to climb, with a consensus of $22.74 billion, up 5.18% from the prior year. This sets up a classic tension: a revenue gain but a profit drop, likely due to ongoing cost pressures.

The real focus, however, will be on the full-year 2026 outlook. The consensus calls for earnings of $6.19 per share, a solid 8.03% increase from 2025. But revenue is expected to be essentially flat at $87.07 billion. This implies that any growth will come almost entirely from margin expansion, not top-line sales. For a stock that has rallied on the strength of new contracts, management's ability to convert that backlog into higher profits will be the critical new catalyst.

The guidance trap is clear. The market has rewarded RTX for securing deals, but it has also priced in a premium valuation, with a forward P/E of 28.06 versus an industry average of 23.56. If management merely confirms the expected revenue growth and flat profit trajectory, the stock could see a relief sell-off. The rally has already outpaced the broader aerospace sector, which is up 10.85% over the past month. To justify that outperformance, the company needs to signal that its massive backlog and recent contract wins will drive meaningful margin improvement in 2026. The guidance will either confirm the rally's logic or expose it as a premature celebration.

Catalysts and Risks: The Post-Earnings Setup

The January 27 earnings report is the immediate catalyst. The market's reaction will hinge on two primary scenarios, each with a distinct and swift directional outcome.

A positive beat on both quarterly earnings and, more critically, a stronger-than-expected 2026 guidance could validate the rally and trigger a new leg up. The setup is already favorable, with the stock having outpaced the broader market and the aerospace sector. If management confirms the momentum from recent contracts like the $1.7 billion Spain deal and the $438 million FAA contract, and signals that the massive backlog is converting into profits, the rally could accelerate. Historical patterns show RTX is capable of swift gains, having seen rallies exceeding 30% in brief periods. A strong guidance call could re-ignite that momentum.

Conversely, any guidance cut or explicit margin concerns could reverse the recent momentum quickly. The stock's forward P/E of 28.06 already prices in a premium valuation. If the company merely confirms flat revenue and modest profit growth, the market may view that as a failure to deliver on the backlog story, leading to a relief sell-off. The risk is that the rally has gotten ahead of the fundamentals, leaving little room for disappointment.

The specific metrics to monitor will be management's commentary on two key drivers. First, the conversion of the $103 billion defense backlog into near-term revenue. Second, the potential for margin uplift in the Raytheon segment. The evidence points to a potential for 50-100 basis points of margin expansion in that unit, driven by capacity investments and backlog execution. If management provides a clear path to achieving that uplift, it would directly support the stock's premium valuation. If they remain vague or conservative, it would highlight the risk that cost pressures are more persistent than the market hopes. The post-earnings setup is binary: a strong guide opens a new path, while a weak one exposes the rally's vulnerability.