RTX‘s (NYSE: RTX) recent earnings report shows more strengths than weaknesses, making the stock appealing for those interested in the aerospace and defense sector. Should investors consider adding this stock to their investment lists?

Here’s a closer look at RTX in light of its latest earnings update.

RTX Shows Positive Performance

This year has been promising for RTX, with its stock climbing 47% so far. The third-quarter earnings report highlighted various positive developments. While there were some setbacks, these appear to be temporary, suggesting a continued positive outlook for long-term investors.

Since stepping in as CEO in May, Chris Calio has quickly aligned the company with investors’ expectations. He outlined three essential goals for the company based on its three segments.

First, he pointed out that Pratt & Whitney must execute its geared turbofan (GTF) fleet management strategy. Fortunately, engine removals and inspections are proceeding as planned. For the defense segment, Raytheon needs to fulfill its backlog and enhance margins, a task it is currently accomplishing by generating new orders. Notably, Raytheon achieved $16.6 billion in orders during the third quarter, raising its backlog to $60 billion from $52 billion at the end of 2023.

Lastly, Calio emphasized the importance of Collins Aerospace increasing its margins while boosting sales. However, this goal is more challenging, as Collins Aerospace reported an 8% decline in commercial original equipment (OE) sales due to lower-than-expected airplane production this year from both Airbus and Boeing.

Image source: Getty Images.

RTX Updates Its Financial Forecast

As a response to the challenges in the commercial aerospace OE sector, similar to the situation faced by GE Aerospace, RTX is benefiting from strong sales in the commercial aftermarket, as older aircraft remain operational. Despite this, RTX has lowered its earnings forecast for Collins while raising it for both Raytheon and Pratt & Whitney.

Data source: RTX presentations.

In summary, RTX raised its overall full-year sales and earnings guidance:

• Adjusted sales expected to be between $79.25 billion and $79.75 billion, up from previous guidance of $78.75 billion to $79.5 billion
• Adjusted EPS projected at $5.50-$5.58, an increase from the earlier range of $5.35-$5.45

This indicates that improvements in the defense sector, as well as benefits from the commercial aerospace aftermarket, are compensating for the challenges in the commercial OE market.

Investor Sentiment Remains Positive

Calio succinctly summarized RTX’s growth potential during the earnings call, stating, “We’ve got an installed base in commercial aerospace that has a long aftermarket tail and leading defense franchises that are seeing record global demand.” This statement encapsulates why investors can be optimistic about the company’s future performance, especially in light of these earnings.

The outlook is bolstered by three main factors. Firstly, successful execution of the inspections program for the GTF, which powers the Airbus A320neo, enhances revenue from its “long aftermarket tail”. Secondly, Raytheon has improved its defense margins, reporting a rise in return on sales to 10.4% from 8.8% last year, indicating progress in addressing a previously problematic backlog. In addition, industry insights suggest strong demand for missiles and rocket systems, a significant area of growth. Lastly, while there is current weakness in commercial OE, the long-term outlook remains hopeful as Boeing and Airbus are expected to increase production in light of their extensive backlogs.

Image source: Getty Images.

Should RTX Be on Your Watchlist?

After the earnings report, RTX appears to be a more attractive investment option, yet its current valuation presents some caution. Trading at just over 20 times estimated earnings for 2025, it does not stand out as particularly undervalued. Similar to Lockheed Martin, much of the positive outlook regarding missile demand might already be reflected in the stock price. However, if RTX continues to enhance its defense profit margins, that perception could change, suggesting the company performed well within its capacities during the third quarter.

Is It Time to Invest $1,000 in RTX?

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin and RTX. The Motley Fool has a disclosure policy.

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Nasdaq, Inc.