RTX trades at $222.00 and has moved in lockstep with the market. Its shares have returned 8.4% over the last six months while the S&P 500 has gained 13.1%.

Is RTX a buy right now? Find out in our full research report, it’s free.

Why Does RTX Stock Spark Debate?

Originally focused on refrigeration technology, Raytheon (NSYE:RTX) provides a variety of products and services to the aerospace and defense industries.

Two Positive Attributes:

1. Organic Growth Indicates Solid Core Business

We can better understand Defense Contractors companies by analyzing their organic revenue. This metric gives visibility into RTX’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, RTX’s organic revenue averaged 10.5% year-on-year growth. This performance was solid and shows it can expand steadily without relying on expensive (and risky) acquisitions.

2. Increasing Free Cash Flow Margin Juices Financials

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, RTX’s margin expanded by 5.2 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. RTX’s free cash flow margin for the trailing 12 months was 12.2%.

One Reason to Be Careful:

Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although RTX has shown solid fundamentals lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

Final Judgment

RTX has huge potential even though it has some open questions. At $222.00 per share (or 30.2× forward P/E), is now the time to initiate a position? See for yourself in our full research report, it’s free.

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