RTX Corp (RTX, Financial) experienced a daily loss of -6.28%, with a 3-month loss of -15.16%. The company's Earnings Per Share (EPS) stands at 3.77. This raises the question: is the stock modestly undervalued? This article presents a comprehensive valuation analysis to answer this question. We encourage you to read on for a deeper understanding of RTX Corp's value.
Company Introduction
RTX Corp is a diversified aerospace and defense industrial company. It was formed from the merger of United Technologies and Raytheon, boasting roughly equal exposure as a supplier to commercial aerospace manufacturers and to the defense market. The company operates in three segments: Collins Aerospace, Pratt & Whitney, and Raytheon. These segments offer a mix of missiles, missile defense systems, sensors, hardware, and communications technology to the military.
Currently, RTX Corp (RTX, Financial) trades at $78.24 per share. However, its estimated fair value, or GF Value, stands at $103.04. This discrepancy suggests that the stock might be modestly undervalued. To understand more about this, let's delve into the company's income breakdown:
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's fair value.
If the stock price is significantly above the GF Value Line, it's likely overvalued, and its future return may be poor. Conversely, if it's significantly below the GF Value Line, it's likely undervalued and may offer higher future returns. In the case of RTX Corp, the stock appears to be modestly undervalued.
Given RTX's relative undervaluation, the long-term return of its stock is likely to be higher than its business growth. The following GF Value chart provides a visual representation of this:
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Evaluating Financial Strength
Assessing the financial strength of a company is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. RTX Corp's cash-to-debt ratio stands at 0.15, which is lower than 76.12% of the companies in the Aerospace & Defense industry. The overall financial strength of RTX is 5 out of 10, indicating fair financial strength.
Here's a look at RTX's debt and cash over the past years:
Profitability and Growth
Investing in profitable companies generally carries less risk. Companies that demonstrate consistent profitability over the long term, particularly those with high profit margins, offer better performance potential. RTX Corp has been profitable 9 years over the past 10 years. Over the past 12 months, the company had revenues of $70.60 billion and Earnings Per Share (EPS) of $3.77. Its operating margin of 8.51% is better than 60.28% of the companies in the Aerospace & Defense industry. Overall, RTX's profitability is ranked as fair.
Growth is a crucial factor in a company's valuation. Our research has found that growth is closely correlated with the long-term performance of a company's stock. RTX's 3-year average revenue growth rate is worse than 69.62% of the companies in the Aerospace & Defense industry. RTX's 3-year average EBITDA growth rate is -8.1%, ranking worse than 68.12% of the companies in the Aerospace & Defense industry. This growth rate suggests room for improvement.
ROIC vs WACC
Another way to determine a company's profitability is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, RTX's ROIC is 3.83, and its WACC is 7.41.
The historical ROIC vs WACC comparison of RTX is shown below:
Conclusion
In conclusion, the stock of RTX Corp (RTX, Financial) is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 68.12% of the companies in the Aerospace & Defense industry. To learn more about RTX stock, you can check out its 30-Year Financials here.
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