New RTX Price Target After $95 Billion Update
The former Raytheon seems likely to follow General Dynamics higher.
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On Wednesday morning, General Dynamics (GD) posted a Q2 GAAP EPS of $4.24 on revenue of $14.1 billion. Both numbers easily beat Wall Street.
General Dynamics designs and manufactures a number of high-end, defense-related items, but the firm is best known for submarines and tanks. Last week, Lockheed Martin (LMT), which is a Sarge-folio long position, posted second-quarter numbers that just crushed expectations. Lockheed also increased guidance for the full year, going well beyond anything Wall Street was looking for. Free cash flow is up. Capex spending, get this, is headed lower. Lockheed makes fighter aircraft and helicopters, but also more of what the Department of Defense/War really needs.
You know who else makes what our troops need? RTX (RTX), that’s who. Last week, RTX, the old Raytheon, posted Q2 sales that beat the street by almost $2 billion and an adjusted EPS that beat consensus by 23 cents a share. That was just the size of the beat.
Keep in mind that RTX includes Raytheon, includes Pratt & Whitney and includes Collins Aerospace. RTX is the parent behind the Patriot air and missile defense system. This system drives incredible demand due to its success in defending assets against ballistic missile and drone attacks. U.S.-allied operators and especially a NATO-related acceleration in procurement are accelerating sales. Hence, production and component manufacturing capacity are being expanded by the firm.
RTX lifted full-year guidance. Net sales are now seen at $95 billion to $96 billion, up from prior guidance of $92.5 billion to $93.5 billion. Adjusted full year EPS is now projected at $7.10 to $7.25, up from $6.70 to $6.90. Free cash flow for the year is now expected to reach $8.5 billion to $8.75 billion, up from the $8.25 billion to $8.5 billion previously. The sky may be the limit for RTX, literally.
Other RTX ‘Brands’
Tomahawk Cruise Missiles: RTX is the name behind both the land-based and naval versions. These missiles have been used extensively by U.S. forces in recent operations, creating a multi-year requirement for the DoD/W to restock. Deals are being drawn up to increase the firm’s annual output to more than 1,000 missiles. Historical rates have run at roughly 50 to 90 missiles for U.S. procurement.
AMRAAM: These missiles have been heavily used in air-to-air roles by U.S. fighter aircraft, but also as a ground-launched interceptor. Stockpiles have been drawn sharply lower this year. Agreements being worked on would target annual production of at least 1,900 units. This would also be a major increase from the 450 to 650 that has historically been manufactured annually.
The Chart
Readers will see that the setup that I gave to the Doug’s Diary crowd last week has worked nicely. That game is still good as RTX posts its first down day in more than a week. RTX has broken out from cup-with-handle pattern of bullish reversal. This cup with handle runs with a $204 pivot.
Relative strength has spiked and has hit technically overbought levels. Hence, the current pause in the rise of the share price. The daily MACD produced a bullish crossover last week of the 26-day EMA by the 12-day EMA with both of those lines in positive territory. The histogram of the nine-day EMA has also moved above the zero-bound. These are all bullish signals. Note that RTX also experienced a “golden cross” earlier tis week.
My Plan
Target Price: $245
Pivot: $204
Add: On pullbacks
Panic: Loss of 21-day EMA (currently $201)
At the time of publication, Guilfoyle was long LMT and RTX equity.
