Please ensure Javascript is enabled for purposes of website accessibility

Why Raytheon Technologies Rocketed Higher in April

By Lou Whiteman - Updated May 7, 2020 at 4:39PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The newest aerospace and defense titan got off to a great start in April.

What happened

Raytheon Technologies (RTX 0.95%), the company formed via the merger between defense contractor Raytheon and the aerospace unit of United Technologies, officially began trading on April 3. The shares got off to a good start, rocketing 19.7% higher as the month went on, according to data provided by S&P Global Market Intelligence.

So what

When United Technologies and Raytheon announced plans to merge in June 2019, the deal was greeted with howls from investors in both companies. United Technologies had built a large and profitable business largely serving the commercial aerospace sector and had benefited from a decade-long surge in new plane orders.

Raytheon, meanwhile, was a defense specialist with exposure to some of the areas deemed most critical to the Pentagon, including missiles, missile defense, and space. Investors, including in United Technologies' case some high-profile activists, balked at the idea of watering down the two pure-play business with exposure to the other side of aerospace.

Illustration of a Raytheon SM-3 interceptor in flight.

Image source: Raytheon Technologies.

Fast forward to present day, and the United Technologies holders have every reason to be glad the deal got done. The COVID-19 pandemic has starved airlines of revenue and threatens to freeze new plane sales for two to three years to come. The airlines have grounded hundreds of planes, meaning less demand for UTC-owned Pratt & Whitney engines and Collins aircraft interior products.

The result is that in a month when many companies with heavy commercial aerospace exposure were under pressure, the new Raytheon Technologies held up well.

Shareholders who owned United Technologies heading into the merger also received shares of the newly formed Carrier Global (CARR 0.95%) and Otis Worldwide (OTIS 1.74%). Those companies, among the best known names in the heating, ventilation, and air conditioning (HVAC), and elevator businesses, were up 33.3% and 15.7% from April 3, respectively.

Now what

Raytheon Technologies reported earnings on May 6, and between the merger accounting and the ongoing pandemic, it's no surprise the results were a mess. They came in ahead of consensus, but the company warned the pandemic was going to cause a serious hit to its commercial revenues and suspended guidance for 2020.

The company's shares have given back some of that April gain so far in May, down 12% for the month through May 6.

Raytheon Technologies has an impressive set of assets, and over time the company should be a winner. But as a general rule, I tend to avoid buying into companies recently formed via megamergers due to the complexities of integration and the chance that something can go wrong. Add in the commercial aerospace slowdown that could take years to play out, and I see no rush to buy into Raytheon Technologies today.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
$97.02 (0.95%) $0.91
Carrier Global Corporation Stock Quote
Carrier Global Corporation
$36.00 (0.95%) $0.34
Otis Worldwide Corporation Stock Quote
Otis Worldwide Corporation
$71.90 (1.74%) $1.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.