Raytheon Seems Well Positioned Amid Coronavirus, Says Goldman Sachs

Raytheon Technologies Corp RTX is well positioned in the aerospace aftermarket and defense, which are the best end-markets in Industrials for long-term cash flow compounding and equity value creation, according to Goldman Sachs.

The Raytheon Analyst

Noah Poponak reinstated coverage of Raytheon Technologies with a Buy rating and a price target of $76.

The Raytheon Thesis

The defense end-market is likely to witness little near-term impact from COVID-19, offering a defensive element to Raytheon’s stock, Poponak said in the note.

He added that the company’s legacy defense business aligns well with Pentagon’s future modernization strategy.

Although the aerospace aftermarket could be substantially impacted by COVID-19 in the near term, market expectations already reflect this and the company’s stock valuation.

He further wrote that a third of Raytheon’s revenue is generated from the aerospace aftermarket and this end-market’s “secular growth, recurring revenue and pricing power all equate to high margins, returns, and free cash that compound over time.”

While the Geared Turbo Fan (GTF) engine continue to be loss making, it's likely to turn profitable soon and grow in the long term with substantial visibility, Poponak said.

RTX Price Action

Shares of Raytheon Technologies had declined 2.66% to $63.36 at time of publication Wednesday.