Despite Pratt's Engine Issue, RTX Still Well-Positioned For Market Recovery: Analyst

Susquehanna analyst Charles P. Minervino reiterated a Positive rating on RTX Corporation  RTX, lowering the price target from $117 to $110. 

RTX reported second-quarter FY23 sales growth of 12% year-over-year to $18.32 billion, +13% organically, beating the consensus of $17.68 billion.

According to a regulatory filing, Raytheon Technologies Corporation changed its name to RTX Corporation, effective July 17, 2023.

RTX expects FY23 sales of $73 billion-$74 billion, up from $72 billion-$73 billion versus the consensus of $72.75 billion.

Newly revised 2023 guidance modestly increased expectations for both the top line and the low end of the EPS range, the analyst notes, while lowering FCF from $4.8 billion to $4.3 billion (due mainly to the Pratt engine issue).

The company stated that Pratt & Whitney has determined that a rare condition in powder metal used to manufacture certain engine parts will require accelerated fleet inspection. 

Taking Pratt’s engine issue into consideration, the analyst lowered estimates.

Mineverno lowered EPS estimates for 3Q23/2023 to $1.22/$4.98 (down from $1.29/$5.03 prior). 

In line with management’s newly lowered FCF guidance for the year, the analyst reduced 3Q23/2023 FCF estimates to $2.1 billion/$4.3 billion from $2.6 billion/$4.8 billion prior. 

The analyst lowered the 2024 EPS estimate to $5.74 (from $5.96 prior). 

However, notwithstanding the near-term headwinds from Pratt’s engine issue, Minervino remains confident that RTX, comprising a solid portfolio of businesses, is still well-positioned to benefit from the recovering commercial aerospace market and rising defense spending globally.

The analyst adds that the company is also likely to gain from large-scale defense contract wins, investments in emerging technologies that could catalyze growth and differentiation, and a stronger-than-expected commercial aviation market.

Price Action: RTX shares are trading lower by 1.48% to $85.81 on the last check Wednesday.