Major Catalysts for the Raytheon
Technologies, a company that has more exposure to the commercial aerospace
industry than many other defense stocks. This quality could be positive or
negative depending on how quickly you think commercial air travel will bounce
back after the pandemic. With that said, it’s nice to know that Raytheon has a
balanced business that includes both commercial aerospace and defense segments,
which means it can effectively deal with declines in either component of its
business. Given the backdrop of current events, investors should be more
interested in Raytheon’s defense business, which includes Raytheon Intelligence
& Space and Raytheon Missiles & Defense.
spending should help to drive revenue growth for Raytheon in the coming years,
particularly thanks to the rising geopolitical tensions and bipartisan support
for defense spending.
delivered Q4 sales of $17 billion, up 4% year-over-year, and saw its adjusted
EPS rise by 46% year-over-year to reach $1.08, which could be a sign of good
things to come for the company this year. Finally, with a 1.99% dividend yield,
this is a defense stock that investors can confidently hold for the long term.
invasion and other geopolitical risks raise the possibility of more defense
spending by the U.S. and its allies in the years to come as the focus shifts
from Afghanistan toward Russia, China and North Korea.
announced it would increase its defense budget to above the 2% of GDP mark that
the NATO alliance requires each member to contribute by a 2024 deadline.
"We have to ask ourselves —
what capacities does Putin's Russia have and which capacities do we need to
counter his threats?" Chancellor Olaf Scholz told parliament Sunday.
The 2% NATO
deadline was agreed to in 2014, following Russia's attack on the eastern
Ukrainian peninsula of Crimea. President Donald Trump had pressed Germany to
boost defense spending ahead of the deadline, threatening to recall U.S. troops
from Germany if Berlin didn't increase its defense budget.
One of the
main reasons that Raytheon is a great company for long-term investment is their
business stability. Regardless of economic conditions, the U.S. government
spends significant money on defense. Raytheon's defense segment is a
beneficiary of this large (and increasing) defense budget. This provides a
reliable source of revenue during both a strong and a poor economy.
their defense backlog ended at $63 B, and book-to-bill ratio stayed above 1.0.
Also, they had several large bookings during 4Q including $1.3 B classified
bookings, $670 M of Electro-Optical infrared awards at RIS, and $730 B in Standard
Missile-2 productions awards at RMD. Based on these numbers, it's pretty safe
to say that Raytheon can cover their operating expenses, buy new machines for
expansion, and pay solid dividends to shareholders.
just had an outstanding 4Q 2021 and overall 2021. Both top and bottom lines
grew as expected, and they generated free cash flow of $5 B after spending $2.1
B in capital expenditure. Both commercial and defense sides performed strongly,
and the result gave plenty of reasons for investors to celebrate.
noticeable part was their margin expansion across the board. Mainly fueled by
cost synergies from the RTX merger ($760 M), the profit margins (Gross margins,
EBIT margins, and EBITDA margins) all increased by 4-5% from pandemic lows. The
margins have not quite returned to their pre-pandemic levels, but are certainly
headed in the right direction. This gives confidence that the company
fundamentals will recover with time.
Morgan Stanley has a price target of $118. Analyst Kristine Liwag
believes that the fourth-quarter guidance Raytheon gave is too conservative.
The company guided for full-year earnings per share (EPS) of between $4.60 and
$4.80 while consensus estimates were at $4.95. In addition, the analyst lauds
the company’s strong free cash flow, stable business model and low use of
Jefferies has a price target of $105. Analyst Sheila Kahyaoglu was
impressed with Collins Aerospace’s performance and expects the defense business
to grow at a 3% compound annual growth rate (CAGR) until 2023. Additionally,
Kahyaoglu sees momentum in profitability and believes that Raytheon should
capitalize on international opportunities.
Finally, Argus has a price target of $100. Analyst John Eade believes
that technical trends have turned positive, driven by a competent management
team and earnings results. Furthermore, the analyst believes that RTX stock is
trading “in line with or below” its peer group in terms of price-earnings (P/E)
and price-sales (P/S) ratios.