RTX (RTX)

Aerospace and defense company Raytheon (NYSE:RTX) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 11.9% year on year to $22.48 billion. The company’s full-year revenue guidance of $86.75 billion at the midpoint came in 1.2% above analysts’ estimates. Its non-GAAP profit of $1.70 per share was 20.6% above analysts’ consensus estimates.

Company Overview

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

Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.

Raytheon’s peers and competitors include Lockheed Martin (NYSE:LMT), Boeing (NYSE:BA), and Northrop Grumman (NYSE:NOC) among others.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, RTX grew its sales at a solid 10.5% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. RTX’s annualized revenue growth of 8.8% over the last two years is below its five-year trend, but we still think the results were respectable.

RTX also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, RTX’s organic revenue averaged 11.9% year-on-year growth. Because this number is better than its two-year revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline results.

This quarter, RTX reported year-on-year revenue growth of 11.9%, and its $22.48 billion of revenue exceeded Wall Street’s estimates by 5.4%.

Looking ahead, sell-side analysts expect revenue to grow 3.7% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds.

RTX was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.5% was weak for an industrials business.

On the plus side, RTX’s operating margin rose by 4.3 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, RTX generated an operating margin profit margin of 11.2%, up 1.1 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

RTX’s solid 11.4% annual EPS growth over the last five years aligns with its revenue performance. This tells us its incremental sales were profitable.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

RTX’s two-year annual EPS growth of 11.8% was great and topped its 8.8% two-year revenue growth.

Diving into the nuances of RTX’s earnings can give us a better understanding of its performance. RTX’s operating margin has expanded over the last two yearswhile its share count has shrunk 6.2%. Improving profitability and share buybacks are positive signs for shareholders as they juice EPS growth relative to revenue growth.

In Q3, RTX reported adjusted EPS of $1.70, up from $1.45 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects RTX’s full-year EPS of $6.27 to grow 1.7%.

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.

RTX has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.9% over the last five years, slightly better than the broader industrials sector.

RTX’s free cash flow clocked in at $4.03 billion in Q3, equivalent to a 17.9% margin. This result was good as its margin was 8.1 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

RTX historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.1%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, RTX’s ROIC averaged 2.3 percentage point increases over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

RTX reported $5.97 billion of cash and $40.71 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $15.3 billion of EBITDA over the last 12 months, we view RTX’s 2.3× net-debt-to-EBITDA ratio as safe. We also see its $941 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

This was a beat and raise quarter. We were impressed by how significantly RTX blew past analysts’ organic revenue expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Looking forward, the company raised its full-year guidance for revenue and EPS. Zooming out, we think this quarter was very good with little to pick on. The stock traded up 5.1% to $168.85 immediately following the results.

Updated: December 4, 2025 at 10:37 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in RTX.

RTX has some positive attributes, but it isn’t one of our picks. First off, its revenue growth was solid over the last five years. And while RTX’s relatively low ROIC suggests management has struggled to find compelling investment opportunities, its expanding operating margin shows the business has become more efficient.

RTX’s P/E ratio based on the next 12 months is 26.2x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $193.79 on the company (compared to the current share price of $170.84).