Raytheon: Q3 Results Meant Lower Full-Year Sales But Higher Earnings

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

Summary

• Our Raytheon buy case has continued to progress in Q3, with recovering air travel driving solid growth in its commercial aftermarket sales.

• However, global supply chain and labor issues were headwinds to some of RTX's commercial original equipment and military sales.

• The impacted sales are mostly delayed, not lost, and are low-margin on the commercial side. RTX contracts protect it from cost inflation.

• RTX has reduced its 2021 outlook on sales but raised it for EPS and free cash flow, helped by cost savings. Long-term targets are unchanged.

• With shares at $88.67, we expect a total return of 42% (12.3% annualized) by 2024 year-end. The Dividend Yield is 2.3%. Buy.

Introduction

We review our Raytheon Technologies investment case after Q3 2021 results were released last Tuesday (Oct. 26).

We initiated our Buy rating on RTX in May 2020 and have reiterated it multiple times. Since our initiation, RTX stock has gained 41% (including dividends), including 26% year-to-date.

Based on Q3 result…