Shares of defense contracting giant RTX (RTX +0.77%) -- the artist formerly known as Raytheon -- jumped 8.2% through 10:30 a.m. ET after beating analyst forecasts for both sales and earnings Tuesday morning.
Heading into its fourth and final quarterly report for 2023, Wall Street had forecast that RTX would earn $1.24 per share (adjusted for one-time items) on sales of $19.7 billion. RTX edged out both numbers, however, reporting an adjusted profit of $1.29 per share and sales of $19.9 billion.
NYSE: RTX
Key Data Points
RTX sales and earnings
Actual generally accepted accounting principles (GAAP) profits weren't quite as strong as that -- only $1.05 per share. Still, GAAP profits rose 9% from last year's $0.95, and sales were up 10% year over year.
This was a strong finish to a weak year for RTX -- which may explain some of the enthusiasm for the stock today. Hurt by charges taken to fix manufacturing defects in its airplane engine division, for all of fiscal 2023, Raytheon posted only 3% sales growth to $68.9 billion -- and its GAAP profits plummeted 36% year over year.
Viewed in that light, therefore, the Q4 results are being taken as evidence that RTX is back on track and growing again.
RTX in 2024
So how will the recovery progress in 2024? Turning to forecasts for the year ahead, RTX said it's expecting sales to range from $78 billion to $79 billion in the new year, up as much as 14% year over year at the midpoint.
Adjusted earnings -- which don't account for any more charges the company may need to take for the engine snafu this year -- should range from $5.25 to $5.40 per share. At the midpoint that would be growth of about 5%, which isn't great, but is still a great improvement over last year's big decline. Best of all, free cash flow (FCF) will continue to inch higher despite the cost of fixing bum engines. From $5.5 billion last year, RTX expects to grow FCF a modest 4% to $5.7 billion.
The bad news is that, even assuming RTX maxes out its free-cash-flow predictions, the defense stock is probably trading for 23 times FCF, but growing at only 4%. That seems more than a little expensive to me, which is why despite today's rally, I'll be passing on RTX stock.
