Raytheon: Mixed Q3 Due To Supply Chain Issues, But Improving

(Preview) Company Update (RTX US) (Buy)

Summary

• RTX shares have risen 7.1% since Q3 results two weeks ago, but are still attractive in our view, with a 20.3x P/E and a 2.3% Dividend Yield.

• Q3 again saw strong EBIT growth in RTX's Aerospace segments, but supply chain headwinds caused declines in its Defense segments.

• Management has reduced 2022 sales and EBIT outlook as a result, but still expects to see EBIT grow by 16.5% this year.

• Things are improving sequentially and management is expecting both sales growth and margin expansion in 2023.

• With shares at $96.14, we expect a total return of 49% (14.3% annualized) by 2025 year-end. Buy.

Introduction

Raytheon Technologies reported Q3 2022 results two weeks ago on October 25. Shares have since risen 7.1%, recovering all of their losses since late August, though still 9% below their peak in April.

We initiated our Buy rating on Raytheon in May 2020 and RTX stock has gained 56% since (including dividends); from the end of 2020, RTX stock has gained 40%, compared to a roughly flat S&P 50…