RTX (RTX -0.29%) has been in a tailspin for much of the last few months due to an aircraft engine issue that will require billions in charges to fix. But management went a long way toward reassuring investors they have the situation under control during their third-quarter earnings presentation, and the stock responded favorably as a result.
Shares of RTX gained 13.1% in October, according to data provided by S&P Global Market Intelligence, with most of that gain coming after RTX's Oct. 24 earnings release.
RTX plots a course toward a recovery
RTX, the commercial aerospace and defense giant that until earlier this year was known as Raytheon Technologies, is one of the world's largest producers of aircraft engines via its Pratt & Whitney unit. In July, the company disclosed issues with some of its engines that would require a costly fix.
The stock fell on that news and continued to fall through September as investors received more clarity about the hefty price tag to complete the fix.
The October earnings release was a reminder that there is still a lot to like about RTX's many businesses. The company beat Wall Street earnings estimates for the third quarter and boasted a $190 billion backlog of future orders.
CEO Greg Hayes told investors RTX "has made significant progress" in the assessment of the Pratt & Whitney issue and did not raise his estimate on how much a fix would cost.
RTX repurchased about $1.4 billion worth of stock during the quarter and also announced a new $10 billion accelerated share-repurchase program that, at the time of the announcement, equated to about 9% of RTX's total market value. The company will fund that repurchase in part through new debt and in part by selling its cybersecurity, intelligence, and services business for $1.3 billion.
Is RTX stock an attractive investment after October's move?
RTX is a massive franchise with defense and commercial aerospace assets. Many of those businesses enjoy strong tailwinds right now, including Pentagon demand to replenish missile stocks and airline demand for new aircraft. Absent the Pratt & Whitney issue, RTX would likely be soaring right now.
Alas, the engine issue will take multiple quarters and billions of dollars to resolve, and will be a distraction to management well into 2024. Airlines are unlikely to abandon Pratt & Whitney products due to a dearth of available alternatives, but any lingering issues related to the engines could make it more difficult for P&W to win future business.
Even after the October surge, RTX shares remain down more than 20% for the year. For those who are willing to be patient and ride out the crisis, this looks like an enticing opportunity to buy into a world class aerospace leader. Just be warned that it could take some time for this investment to pan out.
