What happened

It's Tuesday, and RTX Corporation (RTX -0.45%) stock is going down again.

As of 10 a.m. ET, shares of the aerospace and defense contractor formerly known as Raytheon were suffering their third straight day of declines after a pair of big-name Wall Street banks downgraded their ratings on RTX.

This was hardly a surprise.

So what

Yesterday, RTX confirmed that as a result of a manufacturing defect in PW1100G-JM commercial airplane engines manufactured for Airbus, the company will need to remove and inspect between 600 and 700 such engines, over and above the company's usual inspection schedule. These inspections will continue over the next three years, and will cost RTX at least $3 billion -- a charge to earnings that it will take this current quarter.

On top of that, RTX may have suffered reputational damage from this matter, as it is cutting its full-year sales forecast to a range of $67.5 billion to $68.5 billion.

Responding to RTX's news, British banker Barclays cut its rating on the stock to equal weight (i.e., hold) and slashed its RTX price target by 25% to $75 per share, warning that the manufacturing defect issue could "overhang the stock for some time," according to The Fly. Canada's RBC Capital came to a similar conclusion, downgrading RTX to sector perform (hold), with a price target lowered to $82 a share.  

Now what

And yet, not all the news is bad here. For example, investment bank TD Cowen cut its price target on RTX by less than 10%, to $99 per share, today, and maintained an overweight (i.e., buy) rating on the stock. And I kind of think this more measured punishment is more appropriate.  

Consider: Back in July, when investors first learned of this manufacturing defect, the company was saying as many as 1,200 engines might be affected. Yesterday, we learned the actual number could be only half as bad as that. Furthermore, even with all the charges and forecast changes, RTX is still projecting that it will earn close to $5 a share, non-GAAP (adjusted), this year, which implies a P/E ratio of less than 15 on this dominant aerospace manufacturer. And TD Cowen predicts that, by the time this crisis passes in 2026, RTX could be back earning as much as $7 a share in cash profit, implying a P/E ratio closer to 10.6 at today's prices.

Long story short, while today's downgrades are disconcerting for investors, over the long term the stock is looking rather modestly priced after this week's sell-off. If you're in RTX for the long term, you might just find that today's share price is a bargain.