Raytheon: Strong Sequential Recovery In Q2, Driven By Airlines (Preview)

Company Update (RTX US) (Buy)

Summary

• Raytheon earnings continued their sequential recovery in Q2, with total segment Adjusted EBIT growing 24% from Q1 and 175% from 2020.

• The recovery was led by Commercial Aftermarket growing 24% in Collins and 40% in P&W, as airlines restocked for domestic air travel.

• The defense segments continued their long-term structural growth, with sales up 5% and 7% organically, and EBIT margins expanding again.

• The 2021 outlook has been raised again, and Free Cash Flow is now expected to be $4.5-5.0bn ($3.5bn in 2020), implying a 3.5% yield.

• With shares at $89.18, we expect a total return of 43% (11.7% annualized) by 2024 year-end. Dividend Yield is 2.3% now.

Introduction

We review our investment case on Raytheon after it released Q2 2021 results this morning (July 27). RTX shares are up 3.6% in morning trading (as of 11 am EST), at $89.06.

We initiated our Buy rating on Raytheon in May 2020 and have reiterated it multiple times since. Since our initiation, Raytheon stock has gained 41% (includi…